The Trump administration is planning a  $100 billion handout to wealthy

Patricia Martone of Patriotic Millionaires
Thursday, August 15, 2019

Guest Commentary

In 2017, Republican legislators in the House and Senate passed a sweeping $1.9 trillion tax cut bill, the vast majority of which went directly into the pockets of millionaires, billionaires, and multinational corporations. Emboldened by the success of their first attempt, they’re now back for more tax cuts for the rich. This time, they want to further decrease capital gains taxes.

Last week, a group of  21 Republican Senators led by Ted Cruz  sent a letter to Treasury Secretary Steven Mnuchin demanding that he move forward, without the approval of Congress, to implement the administration’s proposal to index capital gains to inflation by adjusting the cost of the asset to inflation, thereby reducing the total amount taxed. This change would gift around  $100 billion  in cuts over the next decade to some of the richest Americans while doing nothing to help normal working families.

It’s hard to overstate just how flagrant a handout to the rich this change would be. A recent study revealed that the richest 10 percent of Americans own  84 percent of stocks  in this country, while almost 76 percent of capital gains went to households earning over $1 million per year.  

Not surprisingly, if rich people earn all the capital gains, then rich people stand to be the prime beneficiaries of a cut to the effective capital gains tax rate.  Ninety-five percent  of the cuts from indexing capital gains would go to the top 5 percent of earners, with an incredible 63 percent going to the top 0.1 percent.

Even setting aside how regressive this change would be, Senator Cruz’s  argumentthat the change would further encourage “savings, investment and innovation” is nonsense. Indeed, preferential treatment for capital gains has existed since 1913, based upon this theory that a lower capital gains rate will encourage investment and grow the economy. But the disparity in rates is already significant. Taxes on earned income currently range from 10 to 37 percent, but taxes on capital gains range from 0 percent to a top rate of just 20 percent. This means that someone earning only capital gains, who simply holds assets, ends up paying a top tax rate of barely over half what someone who works for a living pays.  

Moreover, the facts make plain that additional tax benefits for capital gains will achieve nothing other than giving more money to rich people. In 2010, the nonpartisan  Congressional Research Service  released a report stating that preferential capital gains treatment had little effect on private saving or investment. Besides, it’s 2019 and investors are doing fine. The economy is strong, except when it’s derailed by other feckless economic actions of the Trump administration like trade wars.  

It’s the average American who is suffering from an unprecedented disparity in wealth and income and wage stagnation. Tax equity suggests that capital gains should now be taxed at the same rate as ordinary income. The Cruz proposal goes in the wrong direction.

When all is said and done, this is more of the same empty hype that we heard in connection with the 2017 tax cut. It was sold as a massive boon to working Americans and the economy as a whole, but in the end almost all of those promises turned out to be false. A  2019 analysis  by the Congressional Research Service reported that the Trump tax cuts had a small to negligible impact on GDP growth, investment, public consumption, and wage growth. What it did do was allow corporations to spend a “recordbreaking amount” on stock buybacks.  

What is plain is that the Trump administration and its supporters in the House and Senate will say anything, no matter how false and nonsensical, to push through changes in the tax code which benefit their wealthy supporters and themselves. To make matters worse, they’ll do so while knowingly exacerbating wealth and income inequality to suppress economic growth and opportunity for more than 90 percent of the people in this country.

This attitude is perfectly summed up in the administration’s proposal to address a small fraction of the huge increase in the national debt caused by the 2017 tax breaks by ending a free lunch program for 500,000 low income children. Voters need to know the truth about what is happening in this country – our leaders are ready to take food out of the mouths of hungry children to pay for tax cuts for the rich.  

Patricia A. Martone is a practicing attorney, a former adjunct professor at New York University’s School of Law, a former equity partner in several law firms, and a member of Patriotic Millionaires, a group of wealthy individuals united in their concern about the destabilizing concentration of wealth and power in America.

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