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Treasury Chief Calls Changing Capital-GainsRule a Job for Congress First

WASHINGTON—Treasury Secretary Steven Mnuchin, urged by conservatives to use his department’s regulatory power to adjust capital-gains taxes for inflation, said he would rather Congress consider the matter first.

In his first public comments on the subject, Mr. Mnuchin said in an interview Thursday that he wouldn’t speculate about whether Treasury even has the authority to make the change.

“Consider that with obviously other parts of Tax 2.0,” he said, referring to congressional Republicans’ effort to extend and expand last year’s tax cuts. “If we’re not able to complete Tax 2.0, then we’ll go back to the drawing board and decide whether we want to consider this on a nonlegislative basis.”

That broader tax-bill extension seems unlikely to happen this year, given Democratic opposition and the almost certain need for Democratic votes in the Senate to pass it.

Currently, people who sell assets generally must pay capital-gains taxes on the nominal difference between their purchase and sales prices. That discourages people from selling and helps encourage them to hold assets until death, when the gains aren’t taxed as income and the base value is reset for heirs.

Consider stock purchased in 1990 for $100,000 and sold today for $300,000. The $200,000 capital gain, taxed at the top rate of 23.8% for such income, would yield a $47,600 tax bill. But, adjusted for one common measure of inflation, the $100,000 original cost would instead be about $197,000 today. The gain would be $103,000 instead of $200,000 and the tax bill would be $24,514.

Conservatives, including Americans for Tax Reform and the Club for Growth, have been urging the administration to take the step on its own, arguing that Treasury has the authority to define cost and that indexing would provide an economic jolt.

Lawrence Kudlow, the National Economic Council director, is a longtime supporter of the idea.

Mr. Mnuchin said the administration doesn’t have a policy position on whether it supports indexing capital gains. “There’s obviously a benefit to taxpayers because it lowers the tax,” he said.

“There’s obviously a revenue impact associated with that.”

Indexing would reduce federal revenue by about $102 billion over a decade, according to the Penn-Wharton Budget Model.

About 90% of the benefits would go to the top 1% of households, according to a recent Congressional Research Service paper.

Senate Democrats have urged Mr. Mnuchin not to act.

“To do otherwise would inappropriately circumvent Congress in order to benefit the already super-fortunate at the expense of everyone else,” nine Finance Committee members wrote to him in May.

Treasury considered the idea in 1992 but the department’s lawyers concluded that the government lacked the legal authority to index capital gains to inflation.

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