Is Treasury Secretary Mnuchin’s Move to Reduce Capital Gains Taxes Naive or Genius?


Yesterday when I heard the news, I almost fell out of my chair, not because it was a bad idea, but the timing, IMHO, could not be worse . Secretary of the Treasury studies ramifications of lowering capital gains taxes on investments like stocks, bonds and real estate, taking inflation into account before levying taxes on investors who sell these assets. Capital gains are currently calculated by subtracting the purchase prices of the original assets from the current sale prices without taking inflation into account. Obviously, such an approach would be seen as favoring the wealthy who have more assets to sell and would thus benefit the most from such a proposition. Furthermore, at least in the short term, opponents argue that this move would further increase our already obscene and growing public debt, which no one thinks is a good idea. However, proponents of the proposal would argue that the reduction in capital gains would increase economic activity in the medium and longer term and ultimately lead to increased tax revenue by the government.

Despite the economic benefits of such a proposal, the policy of doing it and doing it now seems ill-advised. The Democrats already describe this administration as favoring the rich, there is all the noise of Russia, of trade and world tariffs, of immigration, without forgetting that there will be mid-term elections in some months. Why would the GOP offer something like this, which is likely to ignite the media and has NO chance of happening anytime soon? It would look like a head-to-bone movement, right?

Or maybe it's a stroke of pure genius. Stock market enthusiasts who have been feeling death waiting in the markets for months now may believe that recent tanking of market pillars like Netflix and Facebook signals the imminence of a market correction. If history is a guide, August is a good time for a stock market liquidation. The GOP knows that the only hope of supporting the recently reported intoxicating economic growth (and giving them a chance to fight in midterm elections) is to delay the stock market liquidation until at least the ;next year. What better way to prevent people from selling their shares now, but even providing for the possibility that if they wait until next year, their tax bills will be less high? The great part of the movement is that such a "bluff", if you like, won't cost taxpayers a dime and isn't it a better idea than spending trillions of dollars to support the market by urging the Fed to lower interest rates, print money or start quantitative easing again?

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