Trump administration considers taking inflation into account when taxing capital gains
As reported by Reuters:
The Trump administration is considering bypassing Congress to grant a $100 billion tax cut (as projected over a decade) to taxpayers by taking inflation into account when determining capital gains tax liabilities, the New York Times reported on Monday, July 30.
The 20% capital gains tax rate is currently applied to the difference between an asset’s value when it is purchased and when it is sold. But the calculation does not take the effects of inflation into account, which can raise the size of the tax bill significantly depending on the inflation rate.
Quoting from an interview with Treasury Secretary Steven Mnuchin, the newspaper said the Administration could change the definition of “cost” used to calculate capital gains, allowing taxpayers to adjust the value of an asset for inflation when it is sold. “If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that”, Mnuchin was quoted by the Times as saying. “We are studying that internally, and we are also studying the economic costs and the impact on growth.”
Treasury officials were not immediately available to comment on the report, which said the Administration has not concluded whether it has the authority to make such a change.
Since the Internal Revenue Code is legislation which is required to be instituted in the House of Representatives according to the Constitution it does not seem that President Trump can make an executive order simply changing tax law. Adjusting the capital gain rate for inflation may make sense, but this can only be done by Congress.