Dem chairman says he strongly opposes potential administration action to reduce capital gains taxes

House Ways and Means Committee Chairman Richard Neal (D-Mass.) on Wednesday warned the Trump administration against taking unilateral action to reduce capital gains taxes, as Republicans have stepped up their push for the administration to take such action.

Neal said in a statement that executive action to index capital gains to inflation would largely benefit the wealthy, and that the administration shouldn’t bypass Congress to make tax-code changes.

{mosads}”If the Trump Administration unilaterally changes the capital gains tax structure, it wouldn’t just be bad policy, it would be executive overreach,” he said. “Tax legislation must originate in the House Ways and Means Committee — the President should not circumvent Congress to alter the tax code.”

“I strongly oppose the consideration of this action that would undermine our government’s system of checks and balances, further balloon the national debt, and only help the most well-off and well-connected in our country,” he added.

GOP lawmakers and outside conservative groups have been pushing the administration to act on its own to index capital gains to inflation, which would reduce the amount of investment gains subject to tax. They argue that the administration has the authority to index capital gains without Congress passing legislation because the administration has the ability to redefine the term “cost.”

Under current law, people pay capital gains taxes on the difference between the amount they paid for an investment and the amount they sold it for. If capital gains were adjusted for inflation, people would instead pay capital gains taxes on the difference between the amount they paid for an investment plus inflation and the amount for which they sold the investment.

A group of Senate Republicans, led by Sen. Ted Cruz (Texas), sent a letter to Treasury Secretary Steven Mnuchin earlier this week urging Treasury to index capital gains, arguing that it would build on the economic growth the U.S. has experienced following the enactment of Trump’s 2017 tax-cut law.

“Implementing a policy of indexing capital gains to inflation will help to perpetuate these successes by encouraging savings, investment, and innovation so that everyday Americans can continue to enjoy better lives and livelihoods,” the senators wrote.

But Democrats argue that the administration shouldn’t take executive action to reduce capital gains taxes. They say that the administration lacks the authority to do this by executive action and that it would add to the debt and largely benefit the wealthy.

In 1992, the Justice Department’s Office of Legal Counsel issued a memo finding that the administration did not have the authority to index capital gains by regulation.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) told reporters Wednesday that until the administration determines that it has the legal authority to unilaterally index capital gains, he’s not going to say whether he thinks the administration should do so.

The New York Times reported Tuesday that members of the Trump administration are divided on whether to take executive action to index capital gains. The Times reported that National Economic Council Director Larry Kudlow is supportive of the move but Mnuchin is skeptical.

Many of the 2020 Democratic presidential candidates have said they want to increase capital gains tax rates so that investment gains are taxed at the same rates as ordinary income. At Tuesday night’s Democratic presidential primary debate, Sen. Amy Klobuchar (D-Minn.) and former Rep. John Delaney (D-Md.) both spoke about their desire to raise capital gains taxes.

— Niv Elis contributed to this report, which was updated at 4:30 p.m.