The following article by Andrew Schwartz and Galen Hendricks was posted on the Center for American Progress website August 8, 2018:
The Trump administration’s most notable legislative passage has been the massive tax plan enacted at the behest of its political donors. The tax cuts, heavily skewed to corporations and the wealthy, will cost nearly $2 trillion over the next decade. Now, the Trump administration is resurrecting an old idea: attempting to use authority that has been repeatedly rejected on legal grounds to bypass Congress and give another tax cut that’s even more skewed to the wealthy, estimated to be worth at least $10 billion annually.
The goal is to adjust the cost basis of an asset using inflation indexing, so that when the asset’s owner sold the asset, it would reduce the gained amount. This is effectively reducing capital gains taxes. This policy would almost exclusively benefit the wealthy, since they own the bulk of capital assets, such as stocks and other securities and interests in businesses. In fact, 63 percent of the benefit would go to the wealthiest 0.1 percent. Very few middle-class Americans would see any benefit whatsoever. Most Americans only own financial assets through pensions and retirement plans that are tax-favored savings vehicles not subject to capital gains taxes, and home sales have large capital gains exemptions. Tax experts have warned that indexing capital gains taxes without indexing other aspects of the tax code—including interest deductions—would create new loopholes and invite the wealthy to game the system.
Even worse, the Trump administration is openly considering the move in violation of the law. During the George H.W. Bush administration, the U.S. Department of the Treasury evaluated implementing capital gains indexing via regulation. However, the Department of Justice’s Office of Legal Counsel determined that the move would have been unlawful, since the law and congressional intent are clear that capital gains taxes should not be indexed for inflation. In the intervening years, the legal case for indexing capital gains by regulation has only grown weaker based several decades of legal doctrine, as scholar Daniel Hemel and David Kamin recently detailed.