There Might be a Change in Capital Gains

in #economics6 years ago

Just found out steempeak hadn't been publishing some of my scheduled posts. Forgive the flood...

The New York Times ran this article today:

https://www.nytimes.com/2018/07/30/us/politics/trump-tax-cuts-rich.html

which goes over a leaked plan to possibly change the way that capital gains are calculated for tax purposes.

Under current tax law, your cost basis is whatever you paid for a property and gain is the difference between the sales price and that cost.

This proposal would change the cost to be indexed for inflation.

This. Is. Huge.

And I can see the logic of it.

Let's say you bought something in 1990. Could be a stock, bond, real estate, whatever, for 100,000 USD.

You sell it today for 400,000 USD. Under the old rules that's a gain of 300,000 USD.

Under these proposed rules that original cost would be...

go to an inflation calculator... ( https://www.usinflationcalculator.com/ is one )

enter the info...

the inflation adjusted cost is 192,800 USD. That cuts the gain from 300,000 USD to 107,800 USD.

That is an enormous difference.

And the idea behind it is that the 92,800 USD difference between the original cost and the inflation adjusted cost is not real value that you are receiving. That's just paying you back for the inflation you experienced. So that shouldn't be taxed because you can't buy 300,000 USD worth of goods in 1990-terms. You can only buy 107,800 USD worth of goods in 1990 terms.

Of course, inflation is calculated using the prices of things like houses, stocks, etc so there is a feedback loop there which will probably never be solved by law. Nonetheless, this is a change I can get behind.

So that's the actual proposal side of the story.

Then it gets even more interesting (to me at least).

The move would face a near-certain court challenge. It could also reinforce a liberal critique of Republican tax policy at a time when Republicans are struggling to sell middle-class voters on the benefits of the tax cuts that President Trump signed into law late last year.

“At a time when the deficit is out of control, wages are flat and the wealthiest are doing better than ever, to give the top 1 percent another advantage is an outrage and shows the Republicans’ true colors,” said Senator Chuck Schumer of New York, the Democratic leader. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”

OK, so this would definitely benefit high earners. No argument there.

But then there is the near-certain court challenge part. Who would file suit exactly? Nobody would have standing that this change caused harm to them personally. Because paying less in tax is not harmful. One might make the argument that increasing this change would increase the deficit which harms the country as a whole. It definitely would increase the deficit, all other things being equal. But if that's your case then you have to extend that logically and say anything that increases the deficit is harmful. There's no way that can of worms will be opened.

So the only legal challenge would have to be on the grounds on the legal maneuvers used to create the change since apparently Trump is looking at doing this administratively instead of legislatively. That might be an issue and would be a matter for courts to settle.

“I think we ought to look at not penalizing Americans for inflation,” said Representative Kevin Brady of Texas, the Republican chairman of the Ways and Means Committee

I agree. Of course, you could just stop creating inflation through a fraudulent monetary system and then the whole issue is solved. But that's OK, I can opt out and use my crypto.

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