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More fun with indexing

By: Bernie Becker

CAN’T STOP, WON’T STOP: It might take awhile to figure out how seriously President Donald Trump’s administration is considering indexing capital gains to inflation on its own.

But this much appears to be clear: Conservatives are going to keep the pressure up on the administration to act, starting with a new 501(c)(4) called the Center for a Free Economy. The new group’s president is Ryan Ellis, a conservative tax consultant who spent a long stretch at Grover Norquist’s Americans for Tax Reform, while Brendan Dunn of Akin Gump, until recently Senate Majority Leader Mitch McConnell’s tax counsel, will be CFE’s senior adviser. Mattie Duppler of the National Taxpayers Union and Palmer Schoening of the Family Business Coalition will serve on the group’s board.

In a statement announcing the new group, Ellis called indexing capital gains to inflation “a policy that the center-right movement has been working on for decades,” while Duppler added that “smart policy doesn’t need to be held hostage to elections or political cycles.”

So where are we? The discussions among the Trump team are at a “very embryonic stage,” according to a senior administration official, who acknowledged that the final conclusion might be that the Treasury Department can’t act unilaterally — as the George H.W. Bush administration found in 1992. The official also noted that Trump is intrigued by the idea, but that the White House isn’t blind to the potentially difficult politics of installing a policy where most of the benefits would go to the highest earners.

For its part, Bloomberg reported Tuesday that the White House “isn’t actively considering” indexing capital gains by itself. And as Pro Tax’s Brian Faler noted, Treasury Secretary Steven Mnuchin has made it pretty clear that his preference would be for Congress to handle the issue, and he hasn’t done much to suggest that he believes Treasury can index of its own accord. (To be clear, the chances of Congress handling the issue appear pretty slim for the foreseeable future.)

But it’s also interesting to note, as Brian did, that Republicans actually chose in the Tax Cuts and Jobs Act, H.R. 1 (115), to slow down the inflation measure in some parts of the tax code in an effort to offset the cost of tax relief elsewhere in the bill. And while individual tax brackets are among the tax provisions indexed for inflation, the gas tax, the mortgage interest deduction and the child tax credit are among the policies that aren’t.

The view from the Hill: Even some Senate Republican tax writers didn’t want to discuss the idea of indexing capital gains on Tuesday, instead largely pleading ignorance. But Sen. Pat Toomey (R-Pa.), a key architect of last year’s tax law, said he would give his full support to Treasury acting, admitting in the process that Republicans don’t have the votes in Congress. “I think they have it within their authority to do that. The term cost is not defined, and there’s no reason it cannot be defined to be a real cost as opposed to a nominal cost,” Toomey said.

But at least one Senate GOP staffer was skeptical of that argument, and said there were potential consequences to that kind of policy change that would need to be fully thought out — including that indexing capital gains could widen the tax difference between C corporations and pass-throughs, because corporate shares are taxed at capital gains rates and pass-through interests are taxed as ordinary gains. (There’s also concerns about paving the way for more tax shelters.)

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