Trump’s Crony Capitalists Plot a New Heist

The Treasury secretary floats a plan to hand $100 billion in capital gains tax savings to his moneyed friends. It’s almost certainly illegal. 

By The Editorial Board

It seems that last year’s $1.5 trillion tax-cut package, despite heavily favoring affluent investors and corporate titans over workers of modest means, was insufficiently generous to the wealthy to satisfy certain members of the Trump administration. So now Treasury Secretary Steven Mnuchin offers an exciting plan to award an additional $100 billion tax cut to the richest Americans. 

Specifically, Mr. Mnuchin has directed his department to explore allowing investors to take inflation into account when calculating their capital gains tax bill. (Instead of determining how much value a stock had gained by subtracting its selling price from its original purchase price, investors would first adjust the purchase price to reflect what it would be in inflation-adjusted dollars.) Fans of the move argue that it would benefit the wide swath of middle-class Americans who own stocks, along with all those older Americans whose homes have appreciated in value over the decades. And, indeed, many middle-class Americans could wind up with a sliver of savings. But not all investors are equal. 

Independent analyses say that a whopping 97 percent of the savings from Mr. Mnuchin’s plan would go to the highest 10 percent of income earners. (For the severely math challenged, that would leave a paltry 3 percent to be divvied up by the remaining 90 percent of the country.) Two-thirds of all savings would go to the top 0.1 percent of income earners.

 

So in rough dollar terms, the administration is looking to hand $66 billion-plus to the ultrarich like — just to name a few — Mr. Mnuchin, who did very, very well during his years at Goldman Sachs (and already has a net worth estimated at $252 million); Wilbur Ross, the loaded secretary of commerce (estimated net worth: $506.5 million); Betsy DeVos, the even richer secretary of education (about $1.1 billion); and, of course, the extended Trump-Kushner clan. (To be sure, Ivanka Trump could use a financial pick-me-up to help take the sting out of having to close down her clothing brand.)

Thus die the final vestiges of this president’s pretty little narrative about being a populist hero. 

Hard-core economic conservatives and anti-tax activists have long pushed to index capital gains taxes for inflation under the dubious argument that it would bolster the overall economy. Unsurprisingly, this crusade has failed to catch fire in Congress, where even anti-tax lawmakers can be skittish about so blatantly playing to the plutocrats.

But here’s where Mr. Mnuchin’s plan is so politically inspired. He hopes to cut Congress out of this deal altogether by declaring it a regulatory matter and allowing Treasury to unilaterally redefine the term “cost.” No need to subject this process to the messiness of the legislative process when it is so much more efficient to claim jurisdiction for oneself and change the meaning of words to suit one’s purpose. Behold Trumpian logic at its purest. 

One potential sticking point is that Mr. Mnuchin’s proposal may not be, strictly speaking, legal. Congress has never authorized the Treasury Department to interpret tax law in the bizarre way the secretary is advocating. And the last time such a possibility was floated, in 1992, President George Bush’s Justice Department shot it down with extreme prejudice. The department’s Office of Legal Counsel went so far as to issue a 23-page opinion laying out in excruciating detail why the Treasury Department does not have the legal authority to index capital gains for inflation by means of regulation. 

So there’s that.

But the Trump administration isn’t one to fret about legal niceties when pursuing its pet projects. It much prefers to plow forward and let the court challenges shake out as they will. You win some. (Think travel ban, eventually, after multiple revisions.) You lose some. (Snatching migrant kids from their families at the border.) But as the adage goes, it’s easier to ask for forgiveness than permission. 

Mr. Mnuchin may well figure that the risk is worth the potential gain for himself, his wealthy friends and, more broadly, members of the Republican Party’s donor class who might very well show their gratitude by channeling some of their tax savings into party coffers. Besides, a case like this could take a while to wend its way through the courts, and who knows how many millions could be saved in the meantime. 

Beyond pure greed and a desire to suck up to the 0.1 percent, it’s hard to see any real-world logic behind this move. As political messaging goes, it seems flat-out bonkers to position Republicans as the party of the superrich — especially during a critical midterm election campaign with control of both houses of Congress on the line.

But at this point, President Trump may have decided that it doesn’t much matter what economic policies he pursues so long as he can keep the base distracted and fired up with his relentless culture warring. (Build the wall! Lock her up! Gorsuch! Kavanaugh! Stand for the anthem or be fired!) In early 2016, candidate Trump famously boasted that he “could stand in the middle of Fifth Avenue and shoot somebody” and not lose any voters. Since becoming president, he has been given little cause by his base — or by Republicans in Congress — to doubt his political infallibility. As such, with Mr. Mnuchin’s proposal, as with so many other moves undertaken by this administration, Mr. Trump’s thinking may boil down to little more than, “Why the heck not?” 

This may strike some as a depressingly cynical reading of what is being proposed. What, you thought their motives were pure?