Are You Rich? Trump Wants to Give You Yet Another Tax Cut!

Let’s say that ten years ago you bought $1,000 in shares of DrumCo stock. Naturally it’s a well-managed company and today those shares are worth $1,300. You sell them for a $300 profit, and pay a nice, low 20 percent capital gains tax of $60.

But then you start to think. What about inflation? That $1,000 in 2008 is the equivalent of $1,150 today. Your real profit is only $150, and $60 represents a capital gains tax of 40 percent. What a rip off! Part of your “profit” is really just keeping up with inflation. Why do you have to pay any taxes on that?

This is an ancient question, and I’m not here to answer it. You can make a good case for various ways of handling capital gains taxes. However, there’s one question I can answer: what does the law say you have to pay? The answer is that the law doesn’t care about inflation. The base price of the stock is whatever you paid for it in dollars at the time, and the selling price is whatever you sold it for later. The difference is your profit, full stop. Congress has had dozens of chances to change this, but it gets complicated once you dive into it. So they’ve always left it alone and made up for the implicit inflation penalty it by making the capital gains rate pretty low.

But wait. What if you could have both an inflation adjustment and a low capital gains rate? That would be awesome! Let’s check in with the New York Times:

The Trump administration is considering bypassing Congress to grant a $100 billion tax cut mainly to the wealthy, a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives. Steven Mnuchin, the Treasury secretary, said in an interview on the sidelines of the Group of 20 summit meeting in Argentina this month that his department was studying whether it could use its regulatory powers to allow Americans to account for inflation in determining capital gains tax liabilities. The Treasury Department could change the definition of “cost” for calculating capital gains, allowing taxpayers to adjust the initial value of an asset, such as a home or a share of stock, for inflation when it sells.

So who gets all this extra money? The upper middle class? The affluent? The prosperous? The well-off? No, no, and no. Almost all of it would go to the straight-up super rich:

Independent analyses suggest that more than 97 percent of the benefits of indexing capital gains for inflation would go to the top 10 percent of income earners in America. Nearly two-thirds of the benefits would go to the super wealthy — the top 0.1 percent of American income earners.

….According to the budget model used by the University of Pennsylvania’s Wharton School of Business, indexing capital gains to inflation would reduce government revenues by $102 billion over a decade, with 86 percent of the benefits going to the top 1 percent.

The good news is that Trump and his wealthy real-estate pals almost certainly can’t do this. The law is simply too clear on this point. Still, at least it shows that their hearts are in the right place, doesn’t it?

And if they do somehow get away with it, there’s still a silver lining. Now that they’ve gotten religion on inflation, it means that in the interests of fairness they’ll surely be in favor of indexing things like the minimum wage to inflation too. Right? I mean, what possible reason could there be for indexing the wages of the rich to inflation but not the wages of the poor?

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate