A Tax Cut for the People (If 'People' Means Your Yacht Broker)

Two Republican senators, Ted Cruz and Tim Scott, asked the Trump administration this week to implement a $200 billion tax cut on capital gains without Congress, aiming to boost the GOP's economic stance before the 2026 midterms, according to reports from the Washington Post and The Hill.

Why it matters: This move could significantly reduce taxes on sales of assets like stocks and homes, potentially spurring investment and growth, but it faces legal and political challenges.

The big picture: The proposal seeks to adjust capital gains taxes for inflation, benefiting those selling assets by lowering their tax burden, amidst skepticism over its impact and legality.

By the numbers: The plan could cost the Treasury $200 billion in tax receipts, with critics arguing the cut favors ultra-wealthy households. Supporters see it as a boost to the housing market and overall economy.

So, who does this benefit? Probably not the Worker Bee.

While 60 percent of American adults are invested in stocks – either through direct holdings or 401k, IRA, mutual funds or ETFs – the wealthiest 1 percent of Americans own 50 percent of the stock market value, according to Gallup.

Millions of taxpayers may report some capital gains, but the vast majority of capital gains income flows to a very small fraction of high-income individuals.

How small? In 2022, the top 1% of earners received a significant share of capital gains, with the top one-tenth of the top 1% reporting nearly half of all long-term capital gains in 2022, reports the IRS.

In 2021, tax filers earning at least $1 million realized 55 percent of all short-term capital gains and 69 percent of all long-term capital gains. Those earning at least $10 million accounted for 31 percent of short-term gains and 42 percent of long-term gains.

Distribution is extremely skewed: 154,000 tax-return filers in the ultra-exclusive top group reported average capital gains of over $4.7 million, which is 943 times the average reported by taxpayers in the bottom 99.9 percent of the population.

Yes, but: Legal opinions and political opposition suggest Treasury Secretary Scott Bessent may lack the authority for such a unilateral tax policy change, setting the stage for potential legal battles.