Trump thinking about capital gains inflation indexing, $100 billion tax cut

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• President Donald Trump told Bloomberg that he is
  considering indexing capital gains taxes to inflation.
• The move would result in a $102 billion tax cut over
  the next 10 years that would overwhelmingly benefit wealthier
  Americans.
• But the idea is legally dubious.

President Donald Trump confirmed Thursday that he is mulling a
tax move that would save America’s wealthiest billions of
dollars.

In an interview with Bloomberg, Trump said he was considering
indexing capital gains taxes to inflation, a legally dubious move
that would result in a $102 billion tax cut over the next 10
years.

“I’m thinking about it,”
Trump said.

Reports in July indicated that the
Trump administration was considering the move, which would
index the cost of the purchase of an asset to inflation. Here’s
how it would work:

• An investor who made a $100,000 real-estate investment in
  1990 and sold today for $1 million must pay taxes on the $900,000
  difference.
• But under Trump’s new plan, the $100,000 investment would be
  adjusted for inflation.
• Based on the consumer price index inflation rate between 1990
  and today, the value of the initial investment would be adjusted
  to about $198,000.
• That means the investor would owe taxes on the $802,000
  difference, a significant savings compared with current law.

According to the Penn-Wharton Budget Model, over 97% of the
benefits from such a tweak would go to the top 10% of income
earners in the US, 86% of the benefit would go to the top 1% of
income earners, and 63% of the benefit would go to those in the
top 0.1%.

Andy Kiersz/Business Insider

Additionally, according to a report from the Congressional
Research Service, the tax cut would
do almost nothing to help boost the economy.

While Trump is considering the idea, it may not be possible —
legally or politically. Since the Senate is split 51 to 49 in
favor of Republicans, Democrats could block any legislation that
includes the change under the chamber’s rules. Given that
reality, the Trump administration was considering making the
change unilaterally by adjusting Treasury Department regulations.

But President George HW Bush’s administration looked into doing
the same thing, and the Justice Department
determined that the move was illegal.