Republicans happy to let Treasury pursue $100 billion tax cut

Republicans happy to let Treasury pursue $100 billion tax cut
© Greg Nash

Congressional Republicans are rallying behind potential executive action by the Treasury Department to reduce capital gains unilaterally.

With Congress unlikely to pass related legislation anytime soon, GOP lawmakers expressed interest in having the Treasury Department take the lead, a day after The New York Times reported that Treasury Secretary Steven MnuchinSteven Terner MnuchinHillicon Valley: Google to limit political ad targeting | Senators scrutinize self-driving car safety | Trump to 'look at' Apple tariff exemption | Progressive lawmakers call for surveillance reforms | House panel advances telecom bills Trump says he's 'looking at' Apple tariff exemption during tour of Texas plant Trump tax breaks for low-income neighborhoods draw scrutiny MORE said he’s considering doing so.

ADVERTISEMENT

“There’s no question it’s good policy economically,” said Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyNSA improperly collected US phone records in October, new documents show Overnight Defense: Pick for South Korean envoy splits with Trump on nuclear threat | McCain blasts move to suspend Korean military exercises | White House defends Trump salute of North Korean general WH backpedals on Trump's 'due process' remark on guns MORE (R-Pa.), who has co-sponsored legislation on the topic.

Implementing the cut would reduce the amount of money subject to capital gains taxes and result in an estimated $100 billion tax cut, mostly for wealthy individuals.

“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,” Mnuchin told the Times. “We are studying that internally, and we are also studying the economic costs and the impact on growth.”

GOP lawmakers, as well as prominent outside conservatives, have said it’s important to end capital gains taxes on inflation because the current formula leads to people paying taxes on investment gains they didn’t really receive.

“If [the administration has] got the authority to do it, they ought to do it, because I’m an advocate for indexing,” said Sen. Chuck GrassleyCharles (Chuck) Ernest GrassleyOvernight Health Care: GOP senator says drug price action unlikely this year | House panel weighs ban on flavored e-cigs | New York sues Juul Top GOP senator: Drug pricing action unlikely before end of year Key Republicans say Biden can break Washington gridlock MORE (R-Iowa), who serves on the Senate Finance Committee. “Otherwise, you’re taxing inflation and that’s phantom income. You only want to tax real income.”

Republicans also argue that the change would make it easier for people to sell investments and incentivize people to make new investments.

“It is a policy that would encourage economic growth and increase jobs,” Sen. Ted CruzRafael (Ted) Edward CruzLawmakers spar over surveillance flight treaty with Russia Senators voice support for Iran protesters but stop short of taking action Prisons chief: FBI investigating whether 'criminal enterprise' played role in Epstein death MORE (R-Texas) told reporters Tuesday, adding that he’s “encouraged the administration to go forward with it.”

Legislative proposals have been offered in recent months to index capital gains — in the Senate by Toomey, Cruz and Sen. Jim InhofeJames (Jim) Mountain InhofeOvernight Defense — Presented by Boeing — Pentagon watchdog says Syria withdrawal hurt ISIS fight | Vindman testifies on third day of public hearings | Lawmakers to wrap up defense bill talks this week Lawmakers expect to finish defense policy bill negotiations this week Bipartisan senators urge national security adviser to appoint 5G coordinator MORE (R-Okla.), and in the House by Rep. Devin NunesDevin Gerald NunesNunes's facial expression right before lawmakers took break from Sondland testimony goes viral The Hill's 12:30 Report — Presented by Johnson & Johnson — Sondland affirms quid pro quo for Ukraine in public testimony Live coverage: Schiff closes with speech highlighting claims of Trump's corruption MORE (R-Calif.).

Lawmakers are also discussing adding legislation to index capital gains as part of a second round of tax cuts the House plans to vote on this year, though no such provision was included in a document about “tax cuts 2.0” released last week.

The chances of capital-gains cuts becoming law through legislation in the coming months are slim since Republicans would need the support of some Senate Democrats, who are opposed to the effort. That leaves executive action as the more likely vehicle for any change in the short-term.

A spokesman for Nunes said Tuesday that the California Republican supports Treasury indexing capital gains through executive action, and that the congressman thinks Treasury has the authority to do so.

House Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyLawmakers under pressure to pass benefits fix for military families How centrist Dems learned to stop worrying and love impeachment On The Money: Senate passes first spending package as shutdown looms | Treasury moves to roll back Obama rules on offshore tax deals | Trade deal talks manage to weather Trump impeachment storm MORE (R-Texas) told reporters last week that he hasn’t fully researched the issue of whether Treasury can unilaterally implement a capital gains tax cut, but said he thinks “we ought to look at not penalizing Americans for inflation.”

One of the biggest challenges to Treasury acting on its own is the debate over whether the department has the legal authority to index capital gains.

“My understanding is there’s serious legal analysis supporting their ability to act unilaterally,” Cruz told reporters.

Some conservatives say Treasury’s authority stems from a 2002 Supreme Court ruling that found that the term “cost” is ambiguous. Democrats have pointed to opinions from Treasury and the Justice Department from 1992 that indicate executive action cannot be used to index capital gains.

Republicans could also face political challenges if Treasury institutes the tax cut ahead of the midterm elections; indexing capital gains is estimated by the Penn-Wharton Budget Model to largely benefit the wealthy and lower federal revenues by $100 billion over a decade.

Democrats argue that it would exacerbate the deficit impact of the tax-cut law Trump signed last year.

“The idea that they would consider doing this after they put $2 trillion on the national credit card, largely to help folks at the top, is slap-your-forehead kind of stuff,” said Sen. Ron WydenRonald (Ron) Lee WydenHillicon Valley: Google to limit political ad targeting | Senators scrutinize self-driving car safety | Trump to 'look at' Apple tariff exemption | Progressive lawmakers call for surveillance reforms | House panel advances telecom bills Democrats raise privacy concerns over Amazon home security system Trump tax breaks for low-income neighborhoods draw scrutiny MORE (Ore.), the top Democrat on the Finance Committee.

Ways and Means Committee ranking member Richard NealRichard Edmund NealTrump tax breaks for low-income neighborhoods draw scrutiny On The Money: House passes monthlong stopgap | Broader spending talks stall | Judge orders Democrats to give notice if they request Trump's NY tax returns | Progressives ramp up attacks on private equity Overnight Energy: Mark Ruffalo pushes Congress on 'forever chemicals' | Lawmakers spar over actor's testimony | House Dems unveil renewable energy tax plan | Funding for conservation program passes Senate hurdle MORE (D-Mass.) said in a statement Tuesday that “such a move would be irresponsible, legally dubious, and add to the mountain of debt created by the first Republican tax cut.”

Republicans counter that Democrats will attack the GOP as supporting tax cuts for the rich regardless.

“The Democrats are going to say that every day of the week, several times a day, every week of the year, no matter what we do or don’t do,” Toomey said. “So I say, let’s do what’s great for the economy.”

Sen. Ron JohnsonRonald (Ron) Harold JohnsonSondland testifies quid pro quo in Ukraine was real and widely known Dem senator says Zelensky was 'feeling the pressure' to probe Bidens Former Bush aide defends Vindman, criticizes GOP congressmen for 'defaming' him MORE (R-Wis.) agreed that indexing capital gains would help the economy.

“It actually would be a good thing to do. It helps promote more capital formation,” said Johnson, who favors ending capital gains taxes on inflation and then taxing capital gains at the same rates as ordinary income.

Some conservative groups argue that a capital gains cut wouldn’t add to the deficit, at least not in the short run, because it would boost the economy and cause more people to sell investments that they’ve held for years. People pay capital gains taxes only when they sell investments.

Americans for Tax Reform President Grover Norquist predicted that Treasury would issue executive action to index capital gains before the midterm elections because of the economic benefits.

“This is a huge strengthening of the American economy,” he said.