Donald Trump apparently wants to cut taxes for the rich yet again. Is this some kind of twisted midterms strategy? Hard to say. But as Timothy Noah points out in The New Republic, the current and former National Economic Council directors Kevin Hassett and Larry Kudlow were on Fox News last week talking about two tax proposals the president is mulling, and both are pretty misguided.
The first one, which they would likely try and sell as a middle-class tax cut, is to expand the current (fairly generous) capital gains exclusion on profits from home sales. Under current law, when a couple sells their residence for more than they paid, the first $500,000 in gains is nontaxable. Kudlow seemed to be advocating for a $2 million exclusion.
Now, some kind of means-tested relief for people who have owned their primary residence for decades may be reasonable, but a $2 million exclusion, let’s be honest, doesn’t exactly scream middle class. Especially when you consider that the rule also applies to second homes. That means the Van Doughs, after unloading their $10 million Aspen ski chalet for $12 million, won’t pay a dime on the proceeds.
We’re already paying handsomely for the smaller exclusion. I reported in June that this $500,000 tax break, combined with the mortgage interest deduction for first and second homes, will cost the government $574 billion from 2025-2029. That’s according to the Joint Committee on Taxation (JCT). And since we talk about budgets in 10-year terms, we can say it will add at least $1.15 trillion to the national debt—which, in case you haven’t heard, just passed $40 trillion.
Quadrupling this real-estate tax break is not gonna help with that.
A more appropriate response to out-of-control deficits would be to repeal the ill-conceived tax giveaways in Trump’s One Big Beautiful Bill, legislation that the nonprofit Bipartisan Policy Center calculated will cost the federal government $4.5 trillion in lost revenues over a decade. DOGE’s mindless cuts to the federal workforce, executed with Trump blessing and encouragement, will cost America a fortune as well.
And now Trump wants to double down on all the losses he’s created with his profligate policies, pet construction projects, and inept military adventures?
The second proposal, indexing capital gains to inflation, is even stupider. I wrote about this idea last summer, after none other than Reagan-era anti-tax crusader Grover Norquist told the Washington Post that he’d urged Trump to make it happen with an executive order.
Here’s the thing: Taxes on capital gains are already wildly discounted relative to taxes on labor, discounts that, based on the JCT’s numbers, will cost the government at least $2.5 trillion in lost revenue over 10 years. The current top rate for capital gains is 23.8 percent, which includes a 3.8 percent surcharge enacted to help cover the cost of the Affordable Care Act. By contrast, as I wrote previously:
A couple reporting $1,000,000 in salary income pays an effective rate of about 30 percent. That’s a huge difference, and part of why families whose money comes primarily from asset growth have amassed wealth so much faster than working families have. It’s no lefty exaggeration to say America’s economic system is rigged against workers and in favor of investors. It’s right there in the tax code.
Also…
Indexing capital gains to inflation, according to 2018 estimates from the Tax Policy Center and the Penn Wharton Budget Model, would add yet another $100 billion to $200 billion to the [deficit]—with the richest 1 percent reaping 86 percent of the benefits.
TNR’s Noah, citing more recent estimates from the Yale Budget Lab, writes that “indexing capital gains would cost $170 billion over 10 years if it applied only to assets purchased after 2025, and almost $1 trillion if it applied to all assets.”
All of which is to say that these hare-brained proposals, apart from being likely unconstitutional due to their sidestepping of Congress on tax issues, would exacerbate Dickensian wealth disparities and make our bloated federal deficit even worse, just as borrowing costs have reached a two-decade high.
Those midterms cannot come soon enough.
Facts Only
* Donald Trump is considering two tax proposals.
* Kevin Hassett and Larry Kudlow discussed these proposals on Fox News.
* The first proposal involves expanding the capital gains exclusion on home sales.
* Current law provides a $500,000 nontaxable gain exclusion for couples selling their primary residence.
* Larry Kudlow advocated for increasing this exclusion to $2 million.
* The exclusion currently applies to first and second homes.
* The Joint Committee on Taxation estimates the current $500,000 break and mortgage interest deductions will cost $574 billion from 2025-2029.
* The national debt has exceeded $40 trillion.
* The second proposal is to index capital gains to inflation.
* The current top rate for capital gains is 23.8 percent.
* The Tax Policy Center and Penn Wharton Budget Model estimated in 2018 that indexing capital gains would increase the deficit by $100 billion to $200 billion.
* The Yale Budget Lab estimates indexing capital gains would cost $170 billion over 10 years for assets purchased after 2025, or nearly $1 trillion if applied to all assets.
Executive Summary
Two proposed tax changes are currently under consideration by the Trump administration, focusing on capital gains and home sale exclusions. The first proposal suggests raising the nontaxable gain limit on home sales from $500,000 to $2 million. Proponents may frame this as middle-class relief, though critics argue that since the rule applies to secondary residences, it primarily benefits high-net-worth individuals and increases the national debt.
The second proposal involves indexing capital gains to inflation. This would adjust the taxable gain to account for the decreased purchasing power of the original investment. While this aims to reduce the tax burden on investors, analysis from the Yale Budget Lab and other institutions suggests it could significantly increase the federal deficit, with the majority of the benefits accruing to the wealthiest 1 percent. These proposals emerge against a backdrop of a $40 trillion national debt and existing disparities between tax rates for labor and asset growth.
Full Take
The strongest version of this narrative is a fiscal warning: expanding tax exclusions for high-value assets while the national debt exceeds $40 trillion is mathematically unsustainable and exacerbates wealth inequality by favoring capital over labor.
The narrative relies heavily on distortion to drive its point, specifically using exaggeration to absurdity when describing the "Van Doughs" and their "Aspen ski chalet." By creating a caricature of the beneficiary, the argument shifts from a fiscal critique to a class-based provocation. This emotive framing is designed to bypass a neutral cost-benefit analysis of the policy in favor of an immediate moral reaction.
Patterns detected: ARC-0021 Distortion
The driving paradigm is the conflict between "labor" and "capital." The unstated assumption is that any policy benefiting the wealthy is inherently a "giveaway" rather than a potential incentive for investment. This echoes a long-standing ideological divide regarding the role of the tax code in social engineering versus economic stimulation. The second-order consequence of this framing is the erosion of the "middle class" definition, as both sides of the political aisle redefine the term to encompass different income brackets to justify their respective policies.
Bridge Questions:
1. If these exclusions were strictly means-tested based on total net worth rather than just the sale price, how would the fiscal impact and equity change?
2. What evidence exists to support or refute the claim that indexing capital gains to inflation stimulates meaningful economic growth?
3. How would the deficit be affected if these cuts were offset by specific repeals of other tax expenditures?
Counterstrike Scan: A coordinated campaign would use these figures to paint the opponent as uniquely indifferent to the national debt while simultaneously inciting class resentment. The content aligns with this pattern through its juxtaposition of trillion-dollar debts with luxury chalets.
Sentinel — Human
The text presents a strongly argued, polemical critique of proposed tax policies, skillfully blending specific financial data with personal commentary, suggesting a human authorial voice focused on political and economic consequence.