Treasury Secretary Plans Another Tax Giveaway for the One Percent
The swamp monster who Donald Trump chose as Treasury secretary has a plan to save the richest of the rich billions and billions in taxes – and without any vote by Congress, either.
Steve Mnuchin, a former Goldman Sachser and later California banker who grew rich exploiting the housing crisis, revealed the plan to The New York Times while in Argentina for the G-20 meeting of the world’s richest countries.
The plan would radically increase the concentration of wealth in America, accelerating a trend that will be explained below with some shocking numbers. And it comes as the Trump administration, reneging on campaign promises, is floating proposals to cut Medicare, Medicaid and Social Security as well as using subtle means to scuttle the Affordable Care Act.
Mnuchin’s idea is to adjust for inflation the price paid for investments, known as basis. Had this plan been in effect three years ago, a $1 million investment purchased in 1995 and sold in 2015 would have its basis, or cost, inflated to $1.6 million. Where the stock was sold for $3 million the seller would save $120,000 in taxes.
Mnuchin said that if Congress won’t go along with this added tax cut for the richest Americans the Treasury may order it through changes in regulations. That’s an idea certain to be challenged in court, where it should be rejected out of hand, but with the judges Trump is appointing to the federal bench, who knows.
Bypassing Congress is a curious position in light of not just the Constitutional mandate that only Congress imposes taxes, but Trump’s campaign cries that Barack Obama used executive power excessively and should have left more to Congress. But then, Trump actions and campaign promises go together like a fish with a bicycle.
The Trump tax cut law enacted last December will add $3 trillion to our national debt, provided the individual tax cuts are extended for the full ten years as Republicans in Congress have vowed. That’s the opposite of what candidate Trump claimed – that he could pay off in eight years because of his self-proclaimed financial super powers.
Capital gains have long been taxed at 20%, in part to recognize how inflation affects long-term investments. Also, unlike wages which are taxed before they are paid, capital gains are taxed only when an asset is sold and paid only after the sale. That means capitalists enjoy a huge tax advantage over wage slaves.
Capital gains have grown significantly as a source of income since the Age of Reagan began in 1981. This reflects how Reagan and now Trump have changed the federal government’s economic rules to favor the richest of the rich.
The accompanying table shows how capital gains have grown, especially at the top, using 1995 and 2015 to illustrate long-term trends. Most capital gains go to people with incomes of a million or more. The middle class who report capital gains are largely parents and grandparents selling stocks to help pay for the college educations of their descendants or retirees consuming their life savings.
For many years the share of capital gains going to those at the top has been growing as the rich indeed get richer and fewer people own any stocks outside of retirement accounts like IRAs and 401(k) plans.
Stock profits in retirement accounts, by the way, are taxed at the higher rates that apply to wages, not the reduced rates for profitable capital investments. The new Trump tax savings for the rich proposal would not benefit people who own stocks in retirement accounts.
To take inflation into account, DCReport analyzed IRS Table 1.4 data. We compared the share of capital gains reported by people with income of $1 million or more in 1995 to those with income of $1.5 million or more in 2015. (A precise analysis is not possible because the adjustment would have to be to $1.6 million and the nearest IRS reporting bracket is set at $1.5 million and above.)
In 1995 the millionaires’ club harvested 37% of all capital gains. In 2015 that grew to 59%.
Here’s a killer detail: the share of capital gains going to millionaires in 1995 was almost the same as the share going to those making more than $10 million in 2015. The number of households? In 1995 it was spread among 74,620 households, but in 2015 just 14,366.
This is an extraordinary increase in the concentration of wealth. We don’t need government to further concentrate wealth by reducing the burdens of those who have benefitted most from being Americans.