WASHINGTON — Leave it to the Trump administration to push the worst possible way to either stimulate the economy or help the middle class.
Depending on the day (or hour), President Trump either is or isn't worried about the risk of recession. He either is or isn't contemplating ways to stave off such a risk through tax cuts. He either is or isn't contemplating payroll tax cuts specifically.
And he has similarly vacillated on proposals to reduce capital gains taxes. Last Tuesday afternoon, he said he "would love to do something on capital gains"; less than 24 hours later, he told reporters, "I don't want to do that."
One of his top economic advisers, National Economic Council Director Larry Kudlow, has been working to get this particular tax backtrack back on track.
Over the subsequent several days, in a flurry of media interviews, Kudlow declared that Trump was still working on "Tax Cuts 2.0" and had tasked Kudlow with designing the policy. The goal was to juice the economic growth through "additional tax relief for middle-income people, blue-collar people, small business." Among the proposals on the table, per Kudlow: cuts to capital gains taxes.
Kudlow has mostly focused on his long-standing hobbyhorse: allowing capital gains to be indexed to inflation.
In layman's terms, here's what this would mean. Now under the tax code, your profit from, say, a stock sale is calculated by subtracting the price you initially paid from the price you ultimately sold at. In the Kudlow world, you'd instead get to adjust your initial purchase price upward, for inflation. Which generally means the longer you hold the asset, the smaller your calculated profit — and the less tax you owe.
There are a few other major issues with this proposal.
One is that it would be quite expensive, adding about $100 billion to deficits over the next decade, according to an estimate from the Penn Wharton Budget Model.
Another is that it would almost exclusively benefit the tippy-top of the income distribution. Rich people, after all, have the most investment income. According to the same Penn Wharton Budget Model study, the top 1% of households would receive about 86% of the benefits from capital gains indexing.
Finally, there's a legal problem.
"The question was clear: Can we, simply through administrative action, index capital gains?" the attorney general said at the time. "And not only did I not think we could, I did not think that a reasonable argument could be made to support that position."
You know who said that? Trump's own Attorney General William Barr, back during his first go-round as A.G. — under then-president George H.W. Bush.
But, hey, other than fairness, cost, targeting, economic impact and Trump's own attorney general declaring the policy illegal, it sounds like a terrific idea.
Catherine Rampell's email address is email@example.com.