SEVERE WX : Red Flag Warning View Alerts

Romans fact-checks Trump's economy claims

CNN's Christine Romans breaks down what factors are boosting economic growth under President Trump and whether or not they are sustainable.

Posted: Aug 2, 2018 4:59 PM
Updated: Aug 2, 2018 5:09 PM

For years, many Republicans and anti-tax advocates have pushed for a change to the way that investment taxes are calculated.

They may get their wish. Steven Mnuchin told the New York Times that the administration is considering whether it can use its regulatory powers to let investors account for the effect of inflation when calculating how much their investments have grown. Treasury is evaluating the economic impact and the process through which it can be achieved, according to a Treasury spokesperson.

When investors sell stocks or other assets subject to capital gains, they are taxed on the difference between what they receive for the sale and what they paid for it originally. That tax rate is usually 20%, which is lower than the rate people are taxed on their income.

By adjusting capital gains to adjust for inflation, the White House could cut the tax bills for the nation's wealthiest investors by billions of dollars a year.

For example, if an investor bought $100,000 of stock in 1987 right after the stock market crash that year, that stock could easily be worth about $1.4 million today. The tax would be calculated on the $1.3 million gain, which would mean the investor would owe more than $250,000 in capital gains taxes if he or she sold the stock. But adjusting for inflation, a process known as indexing, the original $100,000 cost of the stock would be estimated to be more than $200,000, saving the taxpayer more than $20,000 in taxes.

All of those savings would add up. The lack of indexing increased tax collections by $34 billion in just the most recent fiscal year, according to an estimate cited by the Congressional Research Service.

The sale of stock that would otherwise not take place would lead to some increase in tax collections should indexing be put in place. But even with those additional sales, the net effect of indexing would be a $102 billion reduction in tax collections over a 10-year period, according to a study at the University of Pennsylvania Wharton School of Business.

That study estimated that 86% of that benefit would go to the nation's wealthiest 1%, with more than 60% going to the top one-tenth of 1%.

Households with income of more than $500,000 a year are in the top 1%, according to the IRS.

Larry Kudlow, who joined the administration as director of the National Economic Council in March, is a long-time advocate of the president taking unilateral action to index capital gains. And conservative groups such as Americans for Tax Reform led by Grover Norquist, also have long advocated presidential action to index capital gains. Mnuchin told the Times the Trump administration is considering whether to take unilateral action -- without waiting for Congress to act.

"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," he told the paper.

But in 1992 the Treasury Department under Republican President George H.W. Bush looked at whether they had the power to index capital gains and decided it would take Congressional action to make the change. Although such legislation would have substantial support among Congressional Republicans, including by Kevin Brady, chairman of the House Ways and Means committee which writes tax bills, passing such a change through Congress could be extremely difficult since Democrats have enough seats in the Senate to block such a move.

Advocates of the change argue it would give a fresh jolt to economic growth by freeing investors to sell assets they are holding because of the tax bite they would face. But a report from the nonpartisan Congressional Research Service in July questioned that claim.

"It is unlikely, however, that a significant, or any, effect on economic growth would occur from a stand-alone indexing proposal," the group said in its report.

Oregon Coronavirus Cases

Data is updated nightly.

Cases: 206851

Reported Deaths: 2756
CountyCasesDeaths
Multnomah40371614
Washington26781248
Marion23425323
Clackamas18932235
Lane13908164
Jackson11535146
Deschutes1001882
Umatilla859387
Linn561181
Yamhill478279
Klamath477678
Polk399356
Douglas388483
Malheur361463
Josephine360672
Benton326522
Jefferson237039
Coos216637
Columbia192129
Union149924
Wasco144430
Lincoln143021
Crook129223
Hood River121633
Morrow115416
Clatsop10589
Baker101115
Curry71011
Tillamook6604
Grant5507
Lake4678
Harney4339
Wallowa1945
Gilliam801
Sherman671
Wheeler351
Unassigned00

California Coronavirus Cases

Data is updated nightly.

Cases: 3809710

Reported Deaths: 63356
CountyCasesDeaths
Los Angeles124774424456
Riverside3016684627
San Bernardino2992894845
San Diego2818103771
Orange2730575113
Santa Clara1201632188
Kern1107991404
Sacramento1078211736
Fresno1029471724
Alameda896591277
Ventura816611031
San Joaquin747271440
Contra Costa70730813
Stanislaus634971070
Tulare49776849
Monterey43836432
San Mateo42681581
San Francisco37269556
Santa Barbara34613455
Solano33762266
Merced32313478
Sonoma30884317
Imperial28855741
Placer23589299
Kings23195247
San Luis Obispo21421261
Madera16638245
Santa Cruz16246208
Marin14206230
Yolo14160212
Butte12668194
Shasta12630233
El Dorado10396116
Napa1002680
Sutter9663113
Yuba648951
San Benito610963
Lassen578424
Tehama573463
Nevada491975
Humboldt449948
Mendocino434050
Tuolumne421271
Amador374047
Lake356345
Glenn243427
Siskiyou239637
Colusa228418
Calaveras220756
Del Norte14588
Inyo143438
Mono12954
Plumas7366
Modoc5585
Mariposa4657
Trinity4225
Sierra1160
Alpine890
Unassigned280
Medford
Clear
89° wxIcon
Hi: 95° Lo: 67°
Feels Like: 87°
Brookings
Partly Cloudy
54° wxIcon
Hi: 72° Lo: 52°
Feels Like: 54°
Crater Lake
Partly Cloudy
89° wxIcon
Hi: 75° Lo: 52°
Feels Like: 87°
Medford
Partly Cloudy
89° wxIcon
Hi: 94° Lo: 65°
Feels Like: 87°
Klamath Falls
Clear
82° wxIcon
Hi: 82° Lo: 62°
Feels Like: 80°
Numerous Tuesday Thunderstorms
KDRV Radar
KDRV Fire Danger
KDRV Weather Cam

Community Events