In Trump’s latest efforts to enrich wealthy people like himself, his administration recently proposed indexing the capital gains’ cost basis for inflation. If successful, this change would cost $100 billion, the bulk of which will go to millionaires and billionaires. On the heels of last year’s tax cuts that are not only exceedingly unpopular but also unsuccessful in promoting wage growth, this latest ploy should be seen for what it is – a payoff to wealthy political donors.
Even President Reagan knew that lowering the capital gains tax rate was completely unhelpful for the majority of Americans, and during his administration the lower rate of taxation on dividends and capital gains was removed, leaving capital gains taxed at the same rate of normal income. This was achieved through the Tax Reform Act of 1986, and while it was only in effect for two years, it proves that it can be done. With the growing concentration of wealth in the hands of an ever-shrinking segment of our population, now is as great a time as any to revive similar tax equity legislation.
This is because, simply put, there’s no real, proven reason to give investors a lower tax rate than workers. It does not spur investments, nor does it grow the economy at a higher rate than, say, tax cuts on the middle class. All it does is penalize Americans who are not wealthy, as the highest marginal income tax rate is 39.6%, while the top marginal tax rate for capital gains is just 20%, and capital gains income is almost exclusively earned by people who are already wealthy. This is clearly an area of our tax code that needs to be reexamined, but when given the chance to do so, Republicans punted. In passing the Tax Cuts and Jobs Acts last December without addressing this inequality, the GOP quietly continued the practice of taxing doctors or professors in the highest bracket almost double that of the investor with the same amount of income.
We cannot allow Republicans to continue chipping away at the donor class’ tax responsibility. Last year’s tax cuts have already contributed to our country’s massive wealth inequality and facilitated an absurd number of stock buybacks. It’s pure gall that Trump’s Treasury Department now wants to do the somewhat sensible act of accounting for inflation on an insensibly halved tax rate. We should not allow them to attempt this half-step forward when they have already taken a dozen steps backward. If anything should be done to the capital gains tax rate, it should be increased so it is those who work for a living that receive the lower marginal rates. After all, investors don’t need an incentive to invest. Chances are, even after taxes they come out ahead by investing rather than letting their wealth remain in a savings account. Plus, investing in the stock market does not normally result in new businesses and new jobs. For workers, however, a tax cut means more expendable cash that will be put back into their communities. With an economy that’s 70% consumer driven, this could mean growth across the board.
Ultimately, we need Democrats to start playing defense. This week, Mitch McConnell outright admitted he’s after Medicare, Medicaid and other elements of our social safety net. With continuous Republican-driven tax cuts for the rich, and a ballooning deficit and public debt, these critical programs are seriously at risk. Republicans won’t cut military spending, so this is the largest bundle of costs to go after. This latest proposal will not be the last, and unless there is consistent, concerted pushback in both the House and Senate, Tax Cuts 2.0 will forge ahead, and spending cuts to social programs will follow.
Dale Walker is a retired financial services executive, having worked for Citibank, Wells Fargo, and AIG, among others. Interested in the impact of globalization on world economies and inequality, he received his MBA from the University of North Carolina and an MSC in Globalization and Economics from the University of London. He was a 2017 Fellow in Harvard’s Advanced Leadership Initiative. Mr. Walker is also a member of the Patriotic Millionaires.