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.
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."
"Furthermore," Schumer continued, "Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation."
An independent analysis of the benefits of the Trump administration suggested change, showed more than 97 percent of the benefits go to the top 10 percent of incomes. Almost 66 percent goes to the top 0.1 percent of incomes.
Those figures explain why the 1.5 trillion dollar GOP tax cut signed last year steered clear of capital gains. There is no way to spin the numbers to the middle class as a benefit to them.
Trump's administration is not the first to consider sidestepping Congress to benefit the wealthiest citizens. In 1992, President George H. W. Bush examined the possibility.
They ultimately rejected the idea, deciding the change exceeded the powers granted to the Treasury Department and the executive branch. But some conservatives say Trump should do it anyway.
Even knowing the change will fail judicial review, investors like the Trump and Kushner families will still be able to sell off assets and avoid paying the proper level of taxes right up until the new regulation is overturned by the courts.
According to Ryan Ellis, a tax lobbyist,
No matter what the courts do, you’ll get the main economic benefit the day, the month after Treasury does this."
While Ryan's statement is accurate, knowingly creating a regulation that violates the Constitution for personal gain raises several ethical issues. Alexandra Thornton, senior director of tax policy at the Center for American Progress, remarked,
It would just be a very generous addition to the tax cuts they’ve already handed to the very wealthy and it would play into the hands of their tax advisers, who would be well positioned to take advantage of the loopholes that were opened by it."
But Texas Republican Representative Kevin Brady, chairman of the Ways and Means Committee, thinks bypassing Congress is a case of the ends justifying the means.
I think we ought to look at not penalizing Americans for inflation."
President Bush's administration determined in 1992 that the action was illegal. The Justice Department’s Office of Legal Counsel concurred with their conclusion.
Whether the Trump administration reaches the same decision could have a major impact on the economy, the deficit and Republican results at the ballot box on Tuesday, November 6, 2018.
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