Journalists at MSNBC and the New York Times are very unhappy about the possibility of “more tax cuts for the rich.” MSNBC Live host Ali Velshi andTimes writer Alan Rappeport on Tuesday lamented the possibility that capital gains taxes might soon be indexed for inflation, meaning someone who invested a million dollars in 1990 would soon pay about around $255,000 on the profit of a sale, instead of about $476,000.
Rather than see the upside for the economy or how this could be a fairer process, Velshi complained: “Such a change would result in an estimated $100 billion in tax savings for wealthy investors. But it would dig into the federal government and put it into a deeper fiscal hole than it's already in thanks to the last round of tax cuts, which also mostly benefitted the wealthiest Americans.”
Velshi flailed about, trying to find some sort of way in which this action could be positive. Ultimately, he resorted to the liberal cliche of “tax cuts for the rich.”
The only argument you could use for this is that somehow, the money — in the case of my example the $220,000 saved — is somehow going to be beneficial to the economy. That that person who saved it is going to do something that’s going to be good and benefit other people. Otherwise, it looks a lot like what it sounds like: A tax cut for the rich.
Asked to cite whether the move could benefit the economy, theTimes's journalist Rappeport sarcastically offered the conservative argument: “Potentially, if there was economic growth, that's what Republicans and the administration might say. it could yield faster economic growth because that's what tax cuts always do, according to them.”
Just last week, the gross domestic product surged to 4.1 percent increase, the highest in four years. What did CBS credit for this? Tax cuts. So, despite what journalists at MSNBC and the New York Times think, they can have a positive impact.
A partial transcript is below:
MSNBC Live
7/31/18
3:40ALI VELSHI: Just a few months after receiving a big tax cut under the Republican tax plan, America’s wealthiest taxpayers could well soon be in for another break. The Treasury Department is considering a change to the capital gains tax that would result in a $100 billion tax cut for the wealthy according to reports today in the New York Times, the Washington Post and the Wall Street Journal. Let's take a closer look at how this would work. First, what are capital gains? The profit from the sale of property or another type of investment such as stock. The federal government currently taxes the difference between the purchase price and the sale price of an asset. Obviously, you're not going to pay tax on your initial investment or the cost, but the difference between the cost and selling price is taxed at a rate of 23.8 percent.
That's capital gains. Here's an example. If you invested a million dollars in an asset in 1990 and sold it for $3 million this year, you'd owe taxes on the $2 million difference. Your tax bill would be $476,000. But the Treasury Department is considering changes the definition of cost by allowing for investors to account for inflation when determining their tax liability, so what would that mean? Let’s take the same example. Adjusting for inflation, the same $1 million in 1990 would now cost nearly $2 million. $1.9 million.
So the difference between the purchase price and sale price would be cut in half. Reducing the investors tax bill to just $255,000. That's a difference of more than $220,000. Compared to the 476,000 tax bill if they didn't make this change. All right. 220,000 that the U.S. Treasury would lose out on. Such a change would result in an estimated $100 billion in tax savings for wealthy investors. But it would dig into the federal government and put it into a deeper fiscal hole than it's already in thanks to the last round of tax cuts, which also mostly benefitted the wealthiest Americans.
Joining me now to take a closer look at this is New York Times economic policy reporter Alan Rappeport. He wrote the Times article on the proposed change. Alan, the only argument you could use for this is that somehow, the money — in the case of my example the $220,000 saved — is somehow going to be beneficial to the economy. That that person who saved it is going to do something that’s going to be good and benefit other people. Otherwise it looks a lot like what it sounds like: A tax cut for the rich.
ALAN RAPPEPORT: Right. People argue it's sort of economically inefficient for people to be holding on to these assets and not necessarily being taxed on inflation as opposed to the real, true increase in their wealth. And that by doing away with this or indexing to inflation people would make transactions based on economic realities. But it would be a big benefit to the rich, I think about 97 percent of the gains would go to the top 10 percent. Two-thirds would go to the 0.1 percent. So, while most people would benefit somewhat, it would go very much to the top portions of taxpayers.
VELSHI: According to the University of Pennsylvania Wharton School, Donald Trump’s alma mater, indexing capital gains to inflation could cost the treasury at least $102 billion is there some obvious offset to that? Like is there somewhere we'd gain it?
RAPPEPORT: Potentially, if there was economic growth, that's what Republicans and the administration might say. it could yield faster economic growth because that's what tax cuts always do, according to them. But, realistically, we're looking at $102 billion loss in revenue over ten years. That comes at a time when Treasury is already seeing corporate receipts down a lot because the last round of tax cuts an borrowing is coming up to levels we haven't seen since the financial crisis. So it would definitely be an additional hole in the deficit.
VELSHI: Alan, are there other countries that do this? I’m just sort of thinking about this. It doesn't come to mind, but I understand the rationale behind saying look, there would have been inflation any way on a particular asset, so you shouldn't have the to pay the difference. Is that something that’s a trend around the world?
RAPPEPORT: It's not necessarily something that’s a common thing around the world and it would be unusual for the United States to be doing this sort of by fiat. They've tried to do it congressionally before in the late 1990s. In 1992, George Bush looked into seeing whether or not his Treasury Department could it after he was under a lot of pressure after breaking his no new taxes pledge. His Treasury Department concluded legally they didn't have the authority to do so. The office of legal counsel agreed with him. So this would be breaking new.
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