While fallout from the unpopular Republican tax plan continues —setting the deficit on a path to reach new highs and Congress already pushing cuts to Veterans programs to cover funding shortfalls— President Donald Trump looks to hand another $100 billion tax cut to the wealthiest citizens.
But Congress barely managed to push through the last GOP tax cuts for the wealthy. And midterm elections loom just 100 days away.
Re-election efforts occupy Republicans in Congress for now. Focusing all their time on another unpopular piece of tax legislation would likely spell the end for several prominent GOP Senators, like Majority Leader Mitch McConnell.
But a path to tax cuts remains for the Trump administration: regulation instead of legislation.
Embattled Treasury Secretary Steve Mnuchin announced his department studied whether it could allow Americans to account for inflation in determining capital gains tax liabilities. By redefining “cost,” the Treasury Department could allow taxpayers to adjust the initial value of an asset when it sells.
If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that.”
“We are studying that internally,” Mnuchin stated, “and we are also studying the economic costs and the impact on growth.”
Capital gains calculations are currently based on actual purchase price versus sale price. The difference, or capital gain, is then taxed.
If taxpayers increase the amount they “paid” on the front end, that difference shrinks, as do the taxes owed.
To effectively change tax law through Treasury regulation instead of Congress would likely not survive a judicial review. The U.S. Constitution sets out the separation of powers between the three branches of government.
The Treasury belongs to the executive branch, charged in the Constitution with enforcing the laws. Only the legislative branch makes laws. The third branch, the judicial branch interprets actions taken by the other branches, ensuring they don’t violate the constitution.
Mnuchin emphasized he had yet to determine if bypassing existing tax law could or should be done by the Treasury. But finding a way to reduce capital gains taxes is a longstanding wishlist item for businesses like the Trump Organization where profits come from turning over properties, not creating products or providing services.
When Mnuchin’s comments were relayed to Congress, Democratic leaders like New York Senator Chuck Schumer expressed outrage.
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And therein lies the problem.