Republicans’ latest proposed tax cut for the rich could permanently hobble future presidents

https://www.washingtonpost.com/opinions/whatever-the-crisis-republicans-want-another-tax-cut-for-the-rich/2020/05/25/96d0c6ac-9eb8-11ea-81bb-c2f70f01034b_story.html?fbclid=IwAR0XiIhvFJdK_65Sbd4UOc2pto1Q1_3D_OOaDG06vUEcyeTE7spqDMy4DZM

By  Catherine Rampell

May 25, 2020 at 6:36 p.m. EDT

At this point it’s almost a pathology. Whatever the crisis, whatever the state of the economy, Republicans crave another tax cut for the rich.

The latest proposal is for a temporary “holiday” on capital gains taxes, as White House adviser Kevin Hassett pitched Sunday on CNN and President Trump had earlier proposed via tweet. A one-time, temporary capital gains tax holiday would do little to stimulate the economy, even according to the GOP’s usual line that tax cuts goose growth. The move could, on the other hand, permanently hobble the ability of future presidents to fund the government.

A “capital gain” refers to how much the value of an asset (such as a stock) has increased over time. Taxes on capital gains are triggered only when the asset is sold. So if you bought a few shares of Apple stock when it IPO’d in 1980, your shares would be worth a fortune today — but you don’t owe Uncle Sam a penny until you cash out.

And perhaps not even then.

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The great majority of this taxable investment income accrues to the very richest Americans. Last year, for instance, the top 1 percent of households received three-quarters of all long-term capital gains. So that’s the population who’d primarily benefit when the White House suggests further capital gains tax cuts.

In fact, the government has already created other ways to help wealthy people avoid paying these taxes.

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Even before the pandemic, the White House was proposing additional capital gains tax off-ramps. Now Hassett suggests this new iteration: For some temporary, to-be-determined length of time, rich people could sell their assets, realize whatever gains they’ve accumulated over the decades, and never pay taxes on the income.

Why is the GOP so fixated on capital gains tax cuts?

One possible explanation is self-interest: Some important Republican constituents live off their wealth rather than the sweat of their brows. The GOP is hardly the only party pushing tax breaks that benefit high-income constituents: The Democratic House’s latest coronavirus-relief bill, while weighted overall toward lower-income Americans, nonetheless included a tax break that almost exclusively helps high-income, blue-state residents.

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a one-time, temporary capital gains holiday would only reward past investment decisions. It would not actually increase incentives to make new investments. Sure, the lucky guy who bought Apple stock in 1980 can now cash out tax-free. But the policy would do little to change future investment decisions and increase capital accumulation.

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It would, however, make budgeting more difficult for whoever’s in the White House when the holiday ends.

That’s because anyone with any unrealized gains today would use the holiday to sell and book those gains now, tax-free, thereby denying the government the ability to ever collect revenue on them. You can’t unring the bell. Absent some sort of (possibly unconstitutional) wealth tax, the holiday would deprive the treasury of taxes on the past 50 years or so of accumulated, unrealized capital gains.

This would permanently increase deficits, which in the long run would drag economic growth, according to University of Pennsylvania economist and Penn Wharton Budget Model director Kent Smetters.

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