As President Trump is finding out this year, House Democrats have been an enormous roadblock to his America First agenda. House Speaker Nancy Pelosi has not only stalled immigration reform and infrastructure talks, she’s also joined the conspiracy choir in hurling insults at the President long after his exoneration from charges of Russian collusion by the Mueller report.
Unfortunately for Pelosi, according to recent reports, she will be unable to stop the next big policy achievement from the White House. President Trump may soon completely bypass Congress to deliver massive tax cuts that would add rocket fuel to the U.S. economy right before his re-election.
Under our current tax code, when an individual sells real estate or a stock they could actually be forced to pay taxes on inflation. This is ridiculous because inflation is a tax in and of itself. For example, if you paid $100 for a stock in 1970 and sold it today for $500, the IRS would claim you owe taxes on the $400 “gain” in your investment, when in reality $100 in 1970 was worth more than $500 today — your investment lost value. Why should Americans receive a heavy tax bill just because the value of the dollar declined?
President Trump could solve this problem with the stroke of a pen. All he would have to do is direct his Treasury to redefine “cost” for capital gains purposes to include an inflation adjustment. Doing so would allow trillions of dollars in land, buildings, and stock investments to move to higher, more productive uses. Repealing this inflation tax would also reduce a form of “double taxation” in our economy because investments are typically made out of after-tax earnings.
Indexing capital gains to inflation has great support inside of the Trump administration and was previously championed by National Economic Council Director Larry Kudlow. His former colleague at the Committee to Unleash Prosperity Stephen Moore continues to lead the push to enact this policy item.
But this policy change has previously received support from Democrats too — Chuck Schumer once said on the House floor, “If we really want to increase growth, there are proposals that we can do. I would be for indexing all capital gains and savings and borrowing.” While Senator Schumer now opposes this policy because he is too blinded by his ‘resistance,’ indexing capital gains to inflation was once considered a commonsense solution to protect American’s savings and investments.
While pro-growth legislation is likely stalled in Congress until after the election, President Trump can still deliver a huge ‘Tax Cut 2.0’ by pen. Indexing capital gains to inflation would ensure that Americans no longer have to face a heavy tax bill due to dollar weakness, and it would free up assets for more productive use. This “unlocking effect” would increase federal revenues, decrease the deficit, and give our economy a huge boost before 2020. With all of the benefits mentioned, the only question that remains is: what are we waiting for?
Author’s Note: Mark Elsasser also contributed to this report.
Photo credit: US Department of Labor via Flickr, CC BY 2.0