Trump’s new chief economic advisor, who isn’t an economist but plays one on TV (Trump’s only reality), also appears to be constitutionally clueless. He thinks Trump can, and should, cut taxes on the wealthy even more than he already has, and should do it by executive fiat.
The Wall Street Journal’s Richard Rubin reports that Kudlow is interested in applying an inflation index to the capital gains tax. “Some believe Potus could do it as exec order,” he told Rubin via email.
The policy Kudlow is describing would reduce the amount of taxable income paid by people who receive income from capital gains (mostly, by selling stock). As it stands, right now, if you bought $1,000 worth of stock, and sold it ten years later for $1,500, you would pay tax on the $500 you gained.
The tax code already confers a lot of benefits upon capital gains income. First of all, people who earn money from capital gains don’t pay ordinary income tax rates, as they did in the aftermath of the 1986 Tax Reform Act. They pay a tax rate that’s about half the level of taxes on ordinary income. Second, they get the additional benefit of deferring all taxes until the sale goes through. Their stock portfolio can appreciate for years or decades without any tax, unlike wage income, on which taxes are paid annually. And third, gains in stock that is passed on to heirs go completely untaxed, a massive break.Conservatives have long wanted to give capital gains an additional break, by subtracting inflation from the taxable gain. So, to go back to that $500 stock gain, if inflation ran a total of 10 percent over that decade, then the IRS would knock $100 off the value of the sale, and you’d only be taxed for a $400 capital gain.
No one could possibly think that the president could do that by executive order. Under what possible authority? The power to lay taxes is given solely to Congress under the Constitution. If Congress wanted the capital gains tax to be indexed to inflation, they would have indexed it to inflation. But they didn’t. If Trump tried to do this, the courts would strike it down immediately. So we have a chief economic adviser with no degree in economics, with a terrible track record of economic analysis, and who is totally clueless about the Constitution as well. Or as Trump calls him, “the perfect candidate.” I mean, he looks good on TV and that’s what matters, right?