Trumps capital gains and payroll reductions are probably wrong

President Trump said he plans to further reduce taxes. You should be skeptical about this.

Faced with growing concerns over a sluggish economy and the White House's attempts to downplay them, Trump again aired the idea that a new round of tax cuts could be considered. In addressing reporters Tuesday, the president said his administration "still looks at the capital gains tax [and] payroll tax "reduced according to the options on the table.

"We are thinking about the payroll tax and many people would like to see it," he said.

These remarks were somewhat surprising, as the previous day, White House officials had denied a report from the Washington Post that the White House was launching the idea of ​​a reduction in the payroll. . But this is not the first time Trump has contradicted his own White House. And this proposal This is not really a new territory for Trump – he has launched the idea of ​​a new round of tax cuts before, apparently when it suits them politically, only so that they … disappear.

In the run-up to the 2018 mid-term elections, Trump began talking about a 10% tax cut, seemingly extravagant. He added that the White House and congressional leaders "were studying in depth, 24 hours a day" on something and that this bill would be passed before the mid-term – although it was not going to happen. There was no discernible plan in the works, his staff would apparently have no idea what was going on, and Congress was on hiatus. But that did not stop the president – he continued to talk about the cuts, although he said conveniently that they should take place after the elections.

Half-time came and went, as well as tax cuts. Asked about them in December, Treasury Secretary Steve Mnuchin said that he did not want to say whether he was acting or not of a "reality".

A seemingly similar scenario is now playing out: Politico reported on Wednesday that Capitol Hill executives, when asked about it, said the payroll reduction was not a serious proposition and that "no one has the right". Information about it ". And Trump is already shaky. on capital gains, telling reporters Wednesday that he is not "trying" to do it.

Recognizing that this is probably not real, here is how Trump talks about what would work.

While it is likely that we will not soon see any of the ideas mentioned by Trump, here is a glimpse of how they would work.

On the payroll, employees see 6.2% of their earnings deducted from each paycheck, and their employers pay an additional 6.2% to fund Social Security in the United States. What Trump is probably proposing is a reduction in the employee's payroll tax. It had already happened: the Obama administration reduced the payroll tax to 4.2% in 2011 and 2012, after resisting the compression of a divided Congress, but returned to 6.2% in 2013.

The idea behind the reduction of the payroll tax is that it puts more money in people's pockets, which they then spend, which stimulates the economy.

As the Washington Post points out, a reduction in payroll taxes could be a bigger tax break than Trump's tax reduction bill at the end of 2017, which included lower taxes for most Americans, but benefiting overwhelmingly from corporations and the rich. It was also supposed to stimulate the economy, but it turns out that the rich and the big companies are not so eager to spend their new money as the White House wanted. Economists told USA Today that the reduction in payroll taxes in 2011 added about 0.5 percent to the annual growth of gross domestic product, but this time it would probably be a little less, for example, an increase in 0.3%.

The tax cuts on wages are increasing the deficit, which should reach $ 1 trillion next year. It is also money that is not used to finance social security. The federal government may have to find other revenues for a certain period of time.

In terms of capital gains indexing, it would work a little differently – and it would be, like the 2017 tax bill, generally more beneficial to the rich. In 2018, the New York Times reported that the Trump administration was considering this one as well.

A capital gains tax is taxed when an investor sells an asset, such as a stock. In the United States, the tax rate of capital gains is generally 20%, plus 3.8% of net investment income tax to fund Obamacare. As a general rule, each time this asset is sold, the tax is calculated on the original purchase price and the current selling price. What indexing would mean is that this calculation would begin to take into account inflation. Last year, the Times explained how the solution the White House was considering at the time – and that Trump was able to reproduce now – could work:

If a high source spent $ 100,000 in shares in 1980 and sold it today for $ 1 million, it should pay $ 900,000. But if his original purchase price was adjusted for inflation, it would be about $ 300,000, bringing his taxable "gain" back to $ 700,000. This would allow the investor to save $ 40,000.

That would equate to a tax cut of about $ 100 billion, which would go mainly to the rich. As noted by the economist of the Foundation, Kyle Pomerleauit probably would not do much for the economy.

All this is probably wrong anyway

Could Trump try to change capital gains or payroll taxes? Of course, maybe. But do not hold your breath.

A reduction in payroll would certainly require congressional intervention – which means that Trump should convince House Speaker Nancy Pelosi and House Democrats. The White House could try to bypass the Congress on capital gains indexation, but that would be a legally tenuous move. And, again, it seems like it's not something that's being settled on Capitol Hill right now.

But more generally, Trump often does not tell the truth, including on taxes. We saw it playing a very similar game in front of the midterms. And even before that, in the summer of 2018, Trump had said he wanted to further reduce the corporate tax rate as part of a phase two bill aimed at "furthering the middle class." ".

(To be fair, Trump's comments on Tuesday were prompted by a question from a journalist who was wondering if any of the tax measures were under consideration, and the president was a suggestible man. could have said no.)

Trump is not alone in this situation. Also at the mid-point last year, House Republicans introduced "Tax Reform 2.0," a new round of tax proposals. The hope, it seems, was that voters who were not in love with the 2017 bill would once again be interested in tax legislation – and then vote for the GOP. That's not how it worked.

Republicans have had the opportunity to adopt a more significant tax cut for average Americans in 2017. They could have put in place more security barriers to ensure that corporations must share and spend more of their tax relief. They could have given more tax relief to average Americans instead of putting in place a system that favors the rich and the corporate sector. They did not do it.

And here we are, with an economy that seems a little fragile and experts warning that a recession could loom on the horizon. (That's not guaranteed, so do not panic.) And we have a president who promises tax cuts again, which, if they look like the last time he did that, is not real.