Issues & Insights

Trump Knows Better: Nothing’s More Elitist Than Capital Gains Taxes

I&I Editorial

It should be engraved in the stone of the historical record as the most un-Trumpian thing President Donald Trump has ever said.

“I’ve studied indexing for a long time,” the president remarked at the White House on Wednesday in regard to indexing the capital gains tax for inflation. “I think it will be perceived if I do it as somewhat elitist. I don’t want to do that.”

He continued: “I’m not looking at doing indexing. And I haven’t been seriously looking at it,” adding that “It’s not something I love.”

What is most mystifying and disappointing about this refusal to provide capital gains tax relief to enhance economic growth, though, is that Trump said this just one day after saying “We’ve been talking about indexing for a long time,” pointing out that “many people like indexing and it could be done very simply. It could be done directly by me” without any need for legislation from Congress.

Let’s get to the heart of the matter on what is more a moral than an economic issue. There should not be a capital gains tax, indexed or otherwise.

An ‘Income’ Tax That Taxes Non-Income

“Capital gains income” might be the conventional terminology, but the gains from the sale of property do not constitute income, like the salary or wages one earns. Whether it be a share in a company, a piece of land, a family heirloom, or a baseball card bought for pennies in the 1950s and sold today for millions, an increase in the value of someone’s property is based on a judgment made by the buyer.

It became your property when you bought it and remained your property until you sold it; where is the “income” government considers itself entitled to grab a share of? The truth is, nothing “came in.”

Moreover, why would non-investors consider it “elitist” to lessen the penalty to investors for selling shares in companies they have judged to be unproductive and moving that wealth into firms they view to be productive? The productive companies are the ones that generate jobs.

When Washington levies a tax on the sale of stocks, it interferes in investors’ decision-making. Dying or lagging companies in effect deny resources to the better companies of tomorrow because investors don’t want to be hit with the tax imposed when they move their money. In its greed the government ends up tying up private investment in the wrong places.

This isn’t about lining millionaires’ pockets; it’s about putting to work as many ordinary Americans as possible so that they don’t find their pockets empty.

Ending The Capital Gains Tax Means Jobs

The Heritage Foundation’s Steve Moore is a key Trump economic adviser who in the spring came close to being appointed to the Federal Reserve, but was subjected to a firestorm of slander from the establishment media. Moore has described the unfair way inflation affects capital gains taxes, in which “the seller pays tax not only on the real gain in purchasing power, but also on the illusory gain attributable to inflation.”

Capital gains taxes are a minor source of money for the government. As the Tax Foundation notes, “in 2016, capital gains accounted for just 8.4% of income reported on tax returns, meaning capital gains are a small portion of the individual income tax base.”

Eliminating the tax would, in zero-sum terms, do little harm to the Treasury’s coffers. But the stimulation of economic growth from scrapping the tax would more than make up for the loss, because additional revenues would be collected from other sources of tax collection. As Moore notes, “Significantly, the massive technology boom of the late 1990s came immediately after the 1997 capital gains tax cut,” as prodigious amounts of venture capital were invested.

Hong Kong’s lack of a capital gains tax is a major reason for its many decades of world-renowned prosperity, despite the economic powerhouse encompassing a mere 428 square miles and boasting next to nothing in physical resources.

In turning away from considering capital gains tax relief because “it will be perceived if I do it as somewhat elitist,” Trump is doing far more than squandering an opportunity to further electrify an economy that could use another jolt. He is uniquely able to explain, in man-on-the-street terms, how capital, and capitalism, operate, but he’s passing up a chance to do so in a way that discredits socialism’s appeal at a time when it’s rising in America.

Indeed Joe Biden took advantage of Trump’s reversal by calling for a near-doubling of the capital gains tax on Wednesday in Iowa.

The president could be showing the nation how ending a misguided form of taxation — or at least reducing it — would in the years and decades to come bring new and better livelihoods to millions. What renouncing capital gains tax relief instead does is help the quintessential elitists: those who like to see the federal government feed off the dependency of the citizenry.

— Written by Thomas McArdle

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