Okay, I’m going to plead guilty to playing lawyer without a license. The NYT reports that the Trump administration is proposing to unilaterally (as in no congressional action) change the way that capital gains are calculated for tax purposes.
The plan is to allow people to index capital gains for inflation. For example, under current law, if you bought 100 shares of stock for $100 per share ten years ago, and sell the shares today for $200, you would pay the capital gains tax on the full difference of $10,000. (100* $200 = $20,000, 100* $100 = $10,000. $20,000 minus $10,000 = $10,000)
Under the Trump administration’s plan, you would be able to adjust the original $10,000 purchase for the inflation in the last decade. Let’s say that the inflation over this period has been a total of 20 percent. This means that instead of deducting $10,000 from the current sale price to calculation your gain you would deduct $12,000. This would leave a taxable gain of $8,000 instead of $10,000.
In this case it means a 20 percent reduction in the tax rate on capital gains. The reduction would be greater for longer held assets and less for assets held a short period of time.
In case there is any doubt, almost all of the savings would go to rich people. The article cites an analysis showing that 97 percent of the savings would go to the top 10 percent of the population and more than two thirds would go to the richest 0.1 percent.
And, just to be…