Recently, a discussion has been brewing about additional tax cuts that would benefit, for the most part, the richest top 1%. According to various news sources, the Trump administration is mulling whether an additional $ 100 billion tax cut, through capital gains indexation, could be implemented without congressional approval. While additional tax cuts can be wonderful for the wealthy, the increased tax gap will have to be covered by something. Some fear that the tax cuts will mean reductions in other benefits (for example, Social Security, Medicare, and Medicaid) in the future.
To put all of this in perspective, consider how indexing works. For example, if you bought a stock for $ 200.00 in 1980, and today the value of the stock is $ 600.00. Instead of paying taxes on the profit of $ 400.00 (consistent with current tax law), the purchase price would be adjusted for inflation to $ 420.00. This means that only taxes on $ 180.00 would be owed. The idea is to stimulate economic growth under the supply-side economic theory that postulates job creation through investment by helping the rich save more.
Although supply-side economic theory is sound in theory, there is little historical data to support the positive economic results of supply-side theory applications. At least not for the poorest 90% of the population. According to JG Gravelle (2018), a senior economic policy specialist at the Congressional Research Service, “indexing capital gains would not incentivize new investments but rather would incentivize savings. The effects of capital gains are also limited due to evidence that savings are not very sensitive to changes in rates of return. “
Tax savings are always great for the wealthy, yet for the other 90% of Americans, they always seem to pay the price. Furthermore, at a time when multinationals and wealthy individuals are reporting record profits, the notion that the public would support such a tax cut seems dubious at best. Also, wouldn’t it be nice to hear about a tax cut for the rest of America? It appears that it would do more to stimulate economic growth than provide a greater investment (savings) opportunity for the rich.
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