President Donald Trump is considering making a change to how capital gains are taxed, a move that would embolden conservatives and investors who have long sought capital gains reforms and enrage Democrats.
Capital gains is the rise of the price of a capital asset — like a home, stocks or art — from the time it is purchased to the time it is sold. Under the current tax law, an individual pays capital gains taxes on the amount the price of an asset increased from the time he or she purchased it to the time it’s sold. In other words, to calculate the total value of a capital gains tax, one takes the original price of an asset and subtracts it from the price at which it was sold.
For example, if an individual purchased $100,000 worth of stock in 1975 and sold it for $1,000,000 today, he or she would owe the federal government taxes on $900,000. (RELATED: Senate Republicans Pass Major Tax Reform Bill)
The Trump administration is looking at changing how capital gains taxes are calculated, allowing asset holders to adjust the value of an asset for inflation at the point of sale. Treasury Secretary Steve Mnuchin said earlier in July at the G20 summit that the Department of Treasury is trying to determine whether or not it has the power to grant Americans that ability.
If the administration made it happen, the individual selling his 1975 stock wouldn’t owe capital gains on $900,000, but would see a reduction in his total taxable gains to $700,000. While that would excite wealthy investors, who pay the vast majority of capital gains taxes, the majority of Americans won’t see an overall net-change in their tax liabilities or tangible effect. (RELATED: GOP Tax Reform Will Bring $2 Trillion Back To The U.S.)
Senate Democrats are already posturing against the move, using it as yet another example of how the 2017 Republican tax cuts were a “giveaway” to the wealthiest Americans at the expense of middle-income earning Americans.
“At a time when the deficit is out of control, wages are flat and the wealthiest are doing better than ever, to give the top 1 percent another advantage is an outrage and shows the Republicans’ true colors,” Senate Minority Leader Chuck Schumer said in response to Mnuchin’s comments at the G20 summit. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”
Schumer’s statement highlights the fact that the administration is looking to go around Congress in order to get a change to capital gains taxes, which were, notably, left out of the 2017 tax bill.
House Republicans came up with an outline for a second round of tax cuts earlier in July. Those, too, left out changes to capital gains.
With a slim GOP majority in the Senate and members of Congress focused on winning reelection, it isn’t likely that another round of tax cuts makes its way through both chambers before the November midterm elections.
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