Friday, June 28, 2019

Trump May Introduce a Massive Tax Break for Investors

Tax break coming?
By Robert Wenzel

President Trump is all over the place when it comes to economic policy, however, indications are that he is aggressively pushing for a tax break that would directly benefit investors.

His national economic adviser, Larry Kudlow, is reportedly behind the move.

Specifically, the White House is developing a plan to cut taxes by indexing capital gains to inflation, reports Bloomberg.

Consensus is growing among White House officials, according to Bloomberg, to advance the proposal soon to ensure the benefit takes effect before Trump faces re-election in 2020.

Here's the kicker. The change in capital gains tax calculation would have little chance of passing Congress because it would be viewed as "benefitting the rich."

Taxaholic Senator Ron Wyden, an Oregon Democrat, for example, lashed out at the plan on Thursday, saying in a statement that the president’s “primary goal is to further slash taxes for himself and his wealthy political allies. This would be plainly illegal.”

But even though it would be a break for the rich, it would also be a break for anyone else who owns stocks, real estate, gold coins, etc. , outside of retirement accounts. Funds in Roth IRAs or 401(k) retirement accounts wouldn’t benefit from indexing because of the way the accounts are taxed.

It would, in general, be a particularly powerful break if price inflation starts to accelerate as I am forecasting in the EPJ Daily Alert that it will.

The tax break would work by recognizing the price inflation aspect of a capital gain and eliminate that before calculating a tax.

For example, if a stock is sold for $11,200 where the capital gain is $1,200 but at the same time, over the period of the holding of the stock, inflation pushed prices higher (as measured by government statistics) by 7% then $700 would be subtracted from the gain and only $500 would be taxed.

With the potential for accelerating price inflation very high, the tax break here could be substantial and would turn assets into much sounder inflation hedges. And if inflation really heats up, the break would be massive.

Trump may want this because it benefits his crony rich buddies but it would help all individuals holding non-retirement account assets, especially during a high price inflation period.

Since such a tax break is unlikely to pass through Congress, Trump is considering creating the break by way of an executive order. However, some in Trump's administration hold the view that the break instituted by EO would face legal challenges. Treasury Secretary Steven Mnuchin has, for example, been reportedly dragging his feet on the proposal for this very reason. So most of the work on the proposal is being done at the White House with close supervision of Kudlow.

Finally, finally, Kudlow is becoming of some use to low-tax, free market advocates. I may send him a Christmas card this year.

Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.comand Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bankand most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.


  1. Want to really get people's attention? Don't limit the inflation adjustment to just an offset on a capital gain. That is, if your $10,000 investment results in a capital gain of 5%, or $500, and inflation was 12%, not only would the $1200 wipe out the capital gain, but result in a deductible $700 capital loss.

  2. If he can't get this legislation passed, then taking a page out of Obama's "executive-inaction" book, El Jefe could just instruct the IRS not to enforce the capital-gains tax without an inflation adjustment.

  3. Sounds good! But hey, if Hildebeast would have been elected most of us would already be putting the family pet on the dinner table.