Senate Dems to Mnuchin: Don't index capital gains to inflation

Senate Dems to Mnuchin: Don't index capital gains to inflation
© Greg Nash

A group of Democrats on the Senate Finance Committee is urging Treasury Secretary Steven MnuchinSteven Terner MnuchinOn The Money — Sponsored by Prudential — Senators hammers Ross on Trump tariffs | EU levies tariffs on US goods | Senate rejects Trump plan to claw back spending Mnuchin: Tax-filing 'postcard' to be released next week Former top Treasury official to head private equity group MORE not to issue regulations to index capital gains to inflation.

"This unilateral action would almost exclusively benefit the wealthiest Americans, add $100 billion to the ballooning deficit, further complicate the tax code, and ignore the need for Congressional sanction," the senators, led by Finance Committee ranking member Ron WydenRonald (Ron) Lee WydenScrutiny ramps up over Commerce secretary's stock moves Hillicon Valley: Justices require warrants for cellphone location data | Amazon employees protest facial recognition tech sales | Uber driver in fatal crash was streaming Hulu | SpaceX gets contract to launch spy satellite On The Money — Sponsored by Prudential — Supreme Court allows states to collect sales taxes from online retailers | Judge finds consumer bureau structure unconstitutional | Banks clear Fed stress tests MORE (D-Ore.), said in a letter to Mnuchin Thursday.

A number of prominent conservatives, including Americans for Tax Reform President Grover Norquist, have been pushing the Trump administration to index capital gains to inflation. Doing this would reduce the amount that taxpayers pay in capital gains taxes.

Under current law, taxpayers pay capital gains taxes on the difference between the cost of purchasing an investment and the amount for which the investment was sold. If capital gains were indexed, people would instead pay taxes on the difference between cost of purchasing the investment plus inflation and the amount for which the investment was sold.

Conservatives argue that indexing capital gains would boost the economy and prevent people from paying taxes on income they didn't actually make. They argue the Trump administration can index capital gains to inflation through executive action, citing a 2002 Supreme Court ruling finding that the term "cost" was ambiguous in a telecommunications law.

But the Senate Democrats argued that indexing wouldn't spur new investment. They also noted that the Penn-Wharton Budget Model estimated that indexing capital gains would cost about $100 billion over 10 years and would largely benefit those in the top 1 percent of income. The Democrats suggested that cost estimate was conservative because it doesn't take into account tax sheltering that might occur if capital gains are indexed. 

"Like last year's tax bill, Republicans would force families to bear the burden of paying for it through deep cuts they're expected to make to Social Security, Medicare and Medicaid," the Democrats wrote.

The Senate Democrats also said that they don't think Treasury has the authority to index capital gains through regulation. They pointed to 1992 opinions from Treasury and the Department of Justice finding that Congress's intent was for the term "cost" to not include an inflation adjustment.

"We therefore urge you to resist unilateral action on this issue," the Democrats wrote. "To do otherwise would inappropriately circumvent Congress in order to benefit the already super-fortunate at the expense of everyone else."

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