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 6:50 PM
Updated: Aug 2, 2018 7:09 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.

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 557665

Reported Deaths: 7104
CountyCasesDeaths
Hennepin1161051683
Ramsey48076856
Dakota42704422
Anoka38757416
Washington25072274
Stearns21100219
St. Louis16883298
Scott16071117
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Carver986845
Clay784790
Rice7657102
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Benton533897
Mower451332
Goodhue445572
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Winona439149
Nobles400848
Morrison396359
McLeod396055
Isanti380159
Itasca375553
Beltrami373557
Polk366567
Steele364114
Becker356548
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Freeborn328529
Pine312721
Nicollet308342
Brown294839
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Todd269230
Cass250826
Meeker238137
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Martin213529
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Pope10316
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Stevens82310
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Mahnomen5088
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Traverse3605
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Cook1460

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 358375

Reported Deaths: 5826
CountyCasesDeaths
Polk56091605
Linn20328330
Scott19153235
Black Hawk15566306
Woodbury14917221
Johnson1408481
Dubuque13169203
Dallas1090996
Pottawattamie10769162
Story1032447
Warren556986
Clinton538390
Cerro Gordo523486
Webster508391
Sioux506973
Marshall477274
Muscatine461596
Des Moines441965
Wapello4254120
Buena Vista421940
Jasper407870
Plymouth398179
Lee368555
Marion354875
Jones293355
Henry286437
Bremer279460
Carroll279352
Crawford262440
Boone258933
Benton250355
Washington249250
Dickinson242543
Mahaska225250
Jackson218242
Kossuth213163
Clay211325
Tama206771
Delaware203339
Winneshiek194733
Page190421
Buchanan188931
Cedar184623
Fayette183041
Wright180535
Hardin180142
Hamilton178249
Harrison176673
Clayton167155
Butler162534
Mills158820
Cherokee157138
Floyd155442
Lyon154941
Madison154319
Poweshiek152833
Allamakee149151
Iowa145724
Hancock143734
Winnebago136231
Grundy135432
Cass134854
Calhoun133211
Jefferson130935
Emmet128840
Shelby128637
Sac127319
Louisa127249
Appanoose126647
Mitchell125241
Union123232
Chickasaw122615
Humboldt118326
Guthrie118029
Franklin112921
Palo Alto111022
Howard102822
Montgomery100637
Unassigned10020
Clarke98324
Keokuk94830
Monroe94128
Ida89633
Adair84532
Pocahontas83721
Monona81230
Davis79924
Greene76710
Osceola75716
Lucas74923
Worth7118
Taylor65412
Fremont6149
Decatur5909
Van Buren55518
Ringgold53623
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Audubon4939
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