Senate Democrats Warn Against Capital Gains Tax Cut

The Democratic senators told Mnuchin in their letter that the move would also “almost exclusively benefit the wealthiest Americans, add to the ballooning federal deficit [and] further complicate the tax code.”

Citing the Congressional Budget Office, the senators wrote that the 2017 tax cuts are not paying for themselves through increased revenue. “The FY 2019 deficit is projected to be $896 billion, up from $666 billion in FY 2017,” they said. “Cutting capital gains taxes for the wealthy by indexing gains would only exacerbate this problem.”

While indexing capital gains “would unquestionably add to the deficit, the $100 billion price tag is a conservative estimate because it does not consider the resulting tax sheltering opportunities,” the senators wrote.

“If Treasury indexes capital gains for inflation but does not also index capital expenses, like interest and depreciation, taxpayers would only pay taxes on the real portion of their gains while still deducting their full, nominal expenses. Taxpayers could therefore use their losses on paper to offset tax owed. Indexing both gains and expenses for inflation, meanwhile, would increase the tax code’s complexity and the compliance burden on taxpayers.”