The Trump administration is considering a proposal to bypass Congress and index capital gains for inflation.
At a G20 meeting in Buenos Aires last month, Treasury Secretary Steven Mnuchin announced the department was exploring the idea and would consider acting unilaterally if Congress was unwilling to move legislation forward. The administration has since walked those comments back, maintaining that it is merely studying the issue, that President Donald Trump is undecided, and that it is not seeking to advance it with any urgency.
Prominent Republicans on Capitol Hill, such as Senate Finance Committee chair Orrin Hatch and Susan Collins of Maine, who is often a swing vote on contentious legislation, have also pushed back on the idea. Both have suggested the proposal falls within legislature’s domain and would require an act of Congress.
It is unlikely that such a proposal would pass in this Congress. Democrats have come out vehemently against the idea, and with midterm elections looming, Republicans may be eager to avoid the optics associated with creating a projected $100 billion windfall that would benefit mostly wealthy taxpayers.
Still, there appears to be enough clamoring for the proposal in Washington that it is worth considering the broader ramifications should the administration opt to act alone. Indexing capital gains for inflation, and thus removing parity between the top capital gains rate and the dividend rate, could result in a myriad of potentially unforeseen economic and policy consequences, according to economists. In addition, such a change is not guaranteed to be permanent. A future administration can repeal it just as easily, and it may even go a step further by using the same process to circumvent Congress in enacting other major policies.
Managing Director, Washington National Tax Office
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