Business

Trump’s White House Pushes More Capital Gains Tax Breaks Before Midterms — Here’s Why It Sucks

Fiscal Policy
By Noah Weidner
US Tax Policy Change

The US government loves to spend money it doesn’t have, but President Donald Trump’s second term has been unique in the way it invents new kinds of unconstitutional revenue and hands out tax breaks we can’t afford to groups of people who, candidly, would be fine without them.

And as if a nearly $2T deficit wasn’t bad enough, the President is now proposing fresh tax cuts. But wait, here’s the punch line: they’re unlikely to help you very much.

What Trump is proposing: The US tax system already incentivizes ownership over labor, giving investors favorable treatment through long-term capital gains tax rates, the step-up in basis, and other perks. Now, the Trump Administration is pushing new capital gains breaks that would give even more special treatment to the “wealthiest US households.” Two of the biggest changes would favor owners of property and capital:

  • Eliminating the capital gains tax on primary homes: Today, homeowners already get a $250K exemption ($500K if filing jointly) on the gains from selling a primary residence. This would remove the tax on those gains entirely.
  • Indexing capital gains to inflation: This would shrink capital gains tax bills by factoring inflation into how much an asset has actually appreciated — a break with no equivalent in the labor market.

It’s Unclear How This Wins Votes, But It’s Still Slop

In recent weeks, we’ve started to unpack the **slop that is the US tax system: how a decades-long decline in tax rates has dug us into a nearly $40T hole, and how what’s left of the “system” falls on working-age Americans. This fresh proposal is just more of the same. But unlike other slopulist tax policies, so few people will benefit that it’s hard to see how it helps voters:

  • Eliminating the exemption: This would help just 15% of US homeowners — those whose gains exceed the current exemption.
  • The cost of indexing: Yale Budget Lab projects this would save the top 0.1% over $353K a year, while the bottom 40% of households would save nothing.

A $1.1T cost to the taxpayer: While a wealthy minority would save six, seven, or eight figures, the US taxpayer would ultimately foot the bill. A similar proposal to double the home exemption (to $500K per filer, $1M per joint-filing couple) would cost $76B over 10 years. And worse, the YBL study estimates that indexing capital gains would cost $1T in tax revenue over 10 years if applied retroactively. Given its debt situation, the US should be generating more revenue, not less.

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