President Donald Trump is considering what would result in a cut in taxes for those who pay capital gains, but there is some question whether he’ll do it or not.
“The capital gains tax does not have an inflation adjustment in it,” said Phil Kerpen with American Commitment. “Unlike the income tax brackets, which adjust every year for inflation and Social Security benefits, which adjust every year for inflation, for capital gains taxes, you pay tax on the original acquisition cost, on the difference between what you sell the asset for and what the original acquisition cost was.”
This is hard to deal with for those who hold such assets outside tax-advantaged accounts over the long term.
“If you bought something in the early 1970s or the 1960s and you sold it now, it really hasn’t gained anything in real value, it sort of maybe kept up with inflation, or not even kept up with inflation, when you add those big inflationary years in the 1970s, when you sell it, the government doesn’t care that the gain is notional, imaginary, inflationary, they’re going to tax you anyway.”
President Trump would be able to order the indexing of capital gains by executive order, according to Kerpen.
“It’s the only significant tax cut that I think he could do without Congress,” said Kerpen. “We know that Pelosi and Schumer don’t want to give him any kind of victory, certainly not a tax cut victory. This becomes kind of the only one he can actually accomplish before the election. Therefore, I think there’s a pretty good chance it happens.”
There is some question as to whether Trump has the power to do this without Congress, as the law being reinterpreted is over 100 years old and has always been interpreted to refer to nominal costs in the past. It’s easy to see that if Trump decides to do this, a court challenge is in the offing.