The adage, "Give 'em an inch and they'll take a mile" doesn't apply anymore in our modern age. Today, it's better to say, "Give the rich trillions of dollars in tax cuts, and they'll demand hundreds of millions more."
That's the message conveyed by a letter that went out Monday from 21 Republican senators, led by U.S. Sen. Ted Cruz of Texas, to Treasury Secretary Steven T. Mnuchin. They're demanding that Mnuchin deliver a new tax cut via executive fiat.
The GOP complains that the capital gains tax isn't indexed to inflation. As a result, the argument goes, taxpayers including "everyday Americans" are charged taxes on gains that are due purely to inflation, not to the real appreciation of their stocks or bonds.
"This treatment punishes taxpayers for the mere existence of inflation and is inherently unfair," the senators write.
The supposed unfairness could be rectified if Mnuchin were to redefine the concept of "cost basis" — that is, the price at which an asset was purchased — to include inflation. In other words, the $100 you paid for a share of stock in 1990 would be about $200 in today's money. So, under the GOP senators' proposal, if you sell it today for $400, you would pay tax only on the inflation-adjusted gain of $200, not the nominal gain of $300.
A few things about this. First, to say that capital gains taxes ignore inflation is a lie. The effect of inflation is embedded in the capital gains tax system in several ways: The tax rate is lower than the rate on ordinary wage income — the top rate is 20%, plus a 3.8% surcharge on investment income on taxpayers with income above $250,000, compared with a top tax rate of 37% on ordinary wage and salary income. The capital gains rate itself is tied to the taxpayer's tax bracket, which is indexed to inflation.
Second, changing the capital gains tax structure by fiat would circumvent the Democratic-controlled House Ways and Means Committee, where all fiscal legislation must originate.
"Indexing capital gains for inflation by administrative fiat is plainly an unlawful overreach of regulatory authority and will be struck down" in court, says tax expert Edward Kleinbard, a former chief of staff to the Congressional Joint Committee on Taxation.
Third, the change the Republicans demand would be hellishly complicated. Remember the old days, when conservatives justified the tax cuts of December 2017 by claiming they "simplified" the tax code? Apparently, simplification as a goal goes out the window when there's real money at stake.
Lastly, even more than the 2017 tax cut, this one would be almost exclusively a rich person's gimme. The top 1% would collect more than 86% of the benefits, according to a 2018 analysis by the Wharton School; the bottom 90% would get 2.5% of the benefits. The change would cost the Treasury $100 billion to $200 billion over 10 years, according to expert estimates.
It should come as no surprise that the idea of indexing capital gains should be experiencing a recrudescence today, in the Donald Trump era. A group of 14 anti-tax groups describing themselves as "a broad cross-section of conservative, free-market, pro-business and pro-family organizations" got the ball rolling in January with a letter to Trump, calling on him to "deliver a booster shot to economic growth and the stock market ... without having to go to Congress."
Monday's letter from Cruz and his colleagues just builds on the anti-tax gang's groundwork.
The senators make their pitch on the grounds of economic growth, but their argument is laughably thin. The 2017 tax cuts, they assert, has brought the economy "historic levels of growth," they write. "Thanks to the current administration's policies, business investment went from a disappointing minus 0.6% in 2016 to plus 7% in 2018.
Well, not so much. The latest report on economic growth in the second quarter of 2019 demonstrates that the sugar rush of the tax cuts already has faded away. It's unclear where Cruz et al get their figures on business investment, but the government's Bureau of Economic Analysis pegs the growth rate of gross private domestic investment at minus 1.3% in 2016 and plus 5.1% in 2018. The latter figure is well below the growth rate in 2011, 2012, 2013 and 2014, by the way. And in the second quarter it fell by an annualized rate of 5.5%.
So much for the "significant economic benefits" that the senators say that yet another tax cut, aimed even more squarely at the rich, would bring to America. Ted Cruz and his colleagues are thinking of the benefits it would bring to the wealthiest Americans, not "America."
Michael Hiltzik is a columnist for the Los Angeles Times. He can be reached at firstname.lastname@example.org.