Monday, July 30, 2018

Trump Administration Mulls a Unilateral Tax Cut for the Rich




Image
The move would reinforce a liberal critique of Republican tax policy as Republicans are struggling to sell middle-class voters on the benefits of the tax cuts President Trump signed into law late last year.CreditTom Brenner for The New York Times

WASHINGTON — The Trump administration is considering bypassing Congress to grant a $100 billion tax cut mainly to the wealthy, a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives.

Steven Mnuchin, the Treasury secretary, said in an interview on the sidelines of the Group of 20 summit meeting in Argentina this month that his department was studying whether it could use its regulatory powers to allow Americans to account for inflation in determining capital gains tax liabilities. The Treasury Department could change the definition of “cost” for calculating capital gains, allowing taxpayers to adjust the initial value of an asset, such as a home or a share of stock, for inflation when it sells.

“If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that,” Mr. Mnuchin said, emphasizing that he had not concluded whether the Treasury Department had the authority to act alone. “We are studying that internally, and we are also studying the economic costs and the impact on growth.”

Currently, capital gains taxes are determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference, usually at 20 percent. If a high earner spent $100,000 on stock in 1980, then sold it for $1 million today, she would owe taxes on $900,000. But if her original purchase price was adjusted for inflation, it would be about $300,000, reducing her taxable “gain” to $700,000. That would save the investor $40,000.




The move would face a near-certain court challenge. It could also reinforce a liberal critique of Republican tax policy at a time when Republicans are struggling to sell middle-class voters on the benefits of the tax cuts that President Trump signed into law late last year.

“At a time when the deficit is out of control, wages are flat and the wealthiest are doing better than ever, to give the top 1 percent another advantage is an outrage and shows the Republicans’ true colors,” said Senator Chuck Schumer of New York, the Democratic leader. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”

Capital gains taxes are overwhelmingly paid by high earners, and they were untouched in the $1.5 trillion tax law that Mr. Trump signed last year. Independent analyses suggest that more than 97 percent of the benefits of indexing capital gains for inflation would go to the top 10 percent of income earners in America. Nearly two-thirds of the benefits would go to the super wealthy — the top 0.1 percent of American income earners.

Making the change by fiat would be a bold use of executive power — one that President George Bush’s administration considered and rejected in 1992, after concluding that the Treasury Department did not have the power to make the change on its own. Larry Kudlow, the chairman of the National Economic Council, has long advocated it.

Conservative advocates for the plan say that even if it is challenged in court, it could still goose the economy by unleashing a wave of asset sales. “No matter what the courts do, you’ll get the main economic benefit the day, the month after Treasury does this,” said Ryan Ellis, a tax lobbyist in Washington and former tax policy director at Americans for Tax Reform.




Liberal tax economists see little benefit in it beyond another boon to the already rich.

“It would just be a very generous addition to the tax cuts they’ve already handed to the very wealthy,” said Alexandra Thornton, senior director of tax policy at the liberal Center for American Progress, “and it would play into the hands of their tax advisers, who would be well positioned to take advantage of the loopholes that were opened by it.”

The decades-long push to change the taxation of investment income has spurred a legal debate over the original meaning of the word “cost” in the Revenue Act of 1918, and over the authority of the Treasury Department to interpret the word in regulations.

“I think we ought to look at not penalizing Americans for inflation,” said Representative Kevin Brady of Texas, the Republican chairman of the Ways and Means Committee, who said he would like to see the Treasury Department make the change through regulation.






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“If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that,” said Steven Mnuchin, the Treasury secretary.CreditEric Thayer for The New York Times

Mr. Bush’s Treasury Department determined that redefining “cost” by regulatory fiat would be illegal — a conclusion buttressed by the Justice Department’s Office of Legal Counsel, which found that “cost” means the price that was paid for something.

But conservatives have disputed this conclusion. Pushing Mr. Trump to make the change, Grover Norquist, the president of Americans for Tax Reform, has cited a 2002 Supreme Court decision in a case between Verizon Communications and the Federal Communications Commission that said regulators have leeway in defining “cost” to make the case that the Treasury Department can act alone.

“This would be in terms of its economic impact over the next several years, and long term, similar in size as the last tax cut,” Mr. Norquist said, suggesting that making the change would raise revenue for the government by creating new economic efficiencies and faster growth. “I think it’s going to happen and it’s going to be huge.”




He and others said last year’s tax cut would also pay for itself, but despite strong economic growth, corporate tax receipts have plunged and the deficit has soared.

According to the budget model used by the University of Pennsylvania’s Wharton School of Business, indexing capital gains to inflation would reduce government revenues by $102 billion over a decade, with 86 percent of the benefits going to the top 1 percent. A July report from the Congressional Research Service said that the additional debt incurred by indexing capital gains to inflation would most likely offset any stimulus that the smaller tax burden provided to the economy.

“It is unlikely, however, that a significant, or any, effect on economic growth would occur from a stand-alone indexing proposal,” the report said.

Michael Graetz, a tax law professor at Columbia University who worked in the Treasury Department’s tax policy office when the department determined that taxing capital gains could not be changed by regulation, said he still thought that the decision to change the law should fall to Congress.

He pointed out that the department would have to make decisions about what types of assets would be indexed and that it would essentially be picking winners and losers.

“There’s certainly no legal authority for Treasury to choose what assets to treat this way,” Mr. Graetz said.

Two law professors, Daniel J. Hemel of the University of Chicago and David Kamin of New York University, wrote in a paper last month that states, charities and other entities could sue the Treasury Department if it tried to make the change. Mr. Kamin said in an interview that the change would create opportunities for gaming the tax code, in part because other parts of the code, such as interest payments, would still be unadjusted for inflation.




A framework for a second round of tax cuts, released by the Ways and Means Committee last week, did not address taxation of capital gains. It is highly unlikely that Congress will pass another tax bill this year because of the slim Republican majority in the Senate.

Democratic senators have written to Mr. Mnuchin, urging him to stand down.

“Treasury does not have the unilateral authority to take our tax code and expose it to widespread gamesmanship,” said Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee. “Indexing capital gains under this regime is a boondoggle for the rich, plain and simple.”

A Treasury Department official wrote Mr. Wyden a two-paragraph reply this month. “We appreciate your taking the time to express the thoughts outlined in the letter,” it read. “We will take them under advisement.”




A version of this article appears in print on of the New York edition with the headline: Treasury Weighs $100 Billion Cut In Taxes for Rich. Order Reprints | Today’s Paper | Subscribe

NYT

The Maps That Show That City vs. Country Is Not Our Political Fault Line




The key difference is among regional cultures tracing back to the nation’s colonization.
By Colin Woodard
Mr. Woodard is the author of “American Nations: A History of the Eleven Rival Regional Cultures of North America.”
Image
North America at the time of the Declaration of Independence.CreditUniversal History Archive/Getty Images
FREEPORT, Maine — Contrary to conventional wisdom, the most significant and abiding divide in American politics isn’t between city and countryside, but rather among regional cultures. Rural and urban places certainly have distinct interests and priorities, but in our awkward federation their differences have taken a back seat to the broader struggle between our constituent regions.

Sectionalism isn’t, and never has been, as simple as North versus South or an effete and domineering East against a rugged, freedom-minded West. Rather, our true regional fissures can be traced back to the contrasting ideals of the distinct European colonial cultures that first took root on the eastern and southern rims of what is now the United States, and then spread across much of the continent in mutually exclusive settlement bands, laying down the institutions, symbols and cultural norms later arrivals would encounter and, by and large, assimilate into.

Understanding this is essential to comprehending our political reality or developing strategies to change it — especially as we approach a momentously consequential midterm election.


Tracing our history, I’ve identified 11 nations, most corresponding to one of the rival European colonial projects and their respective settlement zones. I call them Yankeedom; New Netherland; the Midlands; Tidewater; Greater Appalachia; Deep South; El Norte; the Left Coast; the Far West; New France; and First Nation. These were the dominant cultures that Native Americans, African-Americans, immigrants and other vital actors in our national story confronted; each had its own ideals, assumptions and intents.




11 Regions Underlying the 50 States

How rival colonizers spread across the continent and set patterns that influence modern politics and culture.




Midlands

Culturally pluralistic, founded by English Quakers. Ethnic and religious purity were never priorities; community-oriented and distrustful of government intervention.

Yankeedom

Puritan legacy; perfect earthly society with social engineering, individual denial for common good; assimilate outsiders; vigorous government to thwart would-be tyrants.

Left Coast

New Englanders (by ship) and farmers, prospectors and fur traders from Appalachian Midwest (by wagon). Yankee utopianism meets individual self-expression and exploration.
New Netherland
Dutch-founded; retains traits of 17th-century Amsterdam: a global trading culture; materialistic; multicultural; committed to tolerance and freedom of inquiry and conscience.

Far West

Settlement largely controlled by corporations or government via deployment of railroads, dams, irrigation, mines; exploited as an internal colony, to the lasting resentment of its people.
Tidewater

17th-century gentry recreated semi-feudal manorial society of English countryside. Conservative; respect for authority and tradition, not equality or political participation.
LEFT
COAST
YANKEEDOM
NEW
NETHER-
LAND
FAR WEST
Chicago*
Pittsburgh
Philadelphia
MIDLANDS
TIDEWATER
St. Louis
GREATER APPALACHIA
Oklahoma
City
Los
Angeles
Atlanta
DEEP SOUTH
Dallas
EL NORTE
Houston
New Orleans*
San Antonio
SPANISH
CARIBBEAN
NEW FRANCE
El Norte
Borderlands of Spanish-American empire, far enough from Mexico City and Madrid to develop own characteristics: independent, self-sufficient, adaptable and work-centered.
Deep South
Established by slave lords from English Barbados as a West Indies-style slave society. Modeled on slave states of the ancient world — democracy was the privilege of the few. Fights for rollbacks of federal power, taxes on capital and the wealthy, and environmental, labor and consumer protections.
Greater Appalachia
Settlers from war-ravaged Ulster, northern England, lowland Scotland. Deep commitment to personal sovereignty and individual liberty; intense suspicion of external authority.
New France
Folkways of French peasantry blended with traditions of Algonquin-speaking people of what is now Eastern Canada. Down-to-earth, egalitarian, consensus-driven.
Spanish Caribbean
Legacy of the maritime component of Spain’s New World empire with hub in Havana. Includes Puerto Rico and other territories in Caribbean basin.


Midlands
Culturally pluralistic, founded by English Quakers. Ethnic and religious purity were never priorities; community-oriented and distrustful of government intervention.
Yankeedom
Puritan legacy; perfect earthly society with social engineering, individual denial for common good; assimilate outsiders; vigorous government to thwart would-be tyrants.
Left Coast
New Englanders (by ship) and farmers, prospectors and fur traders from Appalachian Midwest (by wagon). Yankee utopianism meets individual self-expression and exploration.
New Netherland
Dutch-founded; retains traits of 17th-century Amsterdam: a global trading culture; materialistic; multicultural; committed to tolerance and freedom of inquiry and conscience.
Far West
Settlement largely controlled by corporations or government via deployment of railroads, dams, irrigation, mines; exploited as an internal colony, to the lasting resentment of its people.
Tidewater
17th-century gentry recreated semi-feudal manorial society of English countryside. Conservative; respect for authority and tradition, not equality or political participation.
LEFT
COAST
YANKEEDOM
NEW
NETHER-
LAND
FAR WEST
Chicago*
Philadelphia
Pittsburgh
MIDLANDS
TIDEWATER
St. Louis
GREATER APPALACHIA
Los Angeles
Atlanta
Oklahoma City
DEEP SOUTH
Dallas
EL NORTE
Houston
New Orleans*
San Antonio
SPANISH
CARIBBEAN
NEW FRANCE
El Norte
Borderlands of Spanish-American empire, far enough from Mexico City and Madrid to develop own characteristics: independent, self-sufficient, adaptable and work-centered.
Deep South
Established by slave lords from English Barbados as a West Indies-style slave society. Modeled on slave states of the ancient world — democracy was the privilege of the few. Fights for rollbacks of federal power, taxes on capital and the wealthy, and environmental, labor and consumer protections.
Greater Appalachia
Settlers from war-ravaged Ulster, northern England, lowland Scotland. Deep commitment to personal sovereignty and individual liberty; intense suspicion of external authority.
New France
Folkways of French peasantry blended with traditions of Algonquin-speaking people they encountered in what is now Eastern Canada. Down-to-earth, egalitarian, consensus-driven.
Spanish Caribbean
Legacy of the maritime component of Spain’s New World empire with hub in Havana. Includes Puerto Rico and other territories in Caribbean basin.


NEW
NETHER-
LAND
LEFT
COAST
FAR
WEST
MIDLANDS
YANKEEDOM
Chicago*
Pittsburgh
Kansas City
St. Louis
TIDEWATER
Los Angeles
Okla. City
Atlanta
Dallas
DEEP SOUTH
New
Orleans*
EL NORTE
San
Antonio
SPANISH
CARIBBEAN
GREATER
APPALACHIA
NEW
FRANCE
Yankeedom

Puritan legacy; perfect earthly society with social engineering, individual denial for common good; assimilate outsiders; vigorous government to thwart would-be tyrants.

New Netherland

Dutch-founded; retains traits of 17th-century Amsterdam: a global trading culture; materialistic; multicultural; committed to tolerance and freedom of inquiry and conscience.
Tidewater

17th-century gentry recreated semi-feudal manorial society of English countryside. Conservative; respect for authority and tradition, not equality or political participation.
Midlands

Culturally pluralistic, founded by English Quakers. Ethnic and religious purity were never priorities; community- oriented and distrustful of government intervention.

Left Coast

New Englanders (by ship) and farmers, prospectors and fur traders from Appalachian Midwest (by wagon). Yankee utopianism meets individual self-expression and exploration.

Far West
Settlement largely controlled by corporations or government via deployment of railroads, dams, irrigation, mines; exploited as an internal colony, to the lasting resentment of its people.

El Norte

Borderlands of Spanish-American empire, far enough from Mexico City and Madrid to develop own characteristics: independent, self-sufficient, adaptable and work-centered.

Greater Appalachia

Settlers from war-ravaged Ulster, northern England, lowland Scotland. Deep commitment to personal sovereignty and individual liberty; intense suspicion of external authority.

New France

Folkways of French peasantry blended with traditions of Algonquin-speaking people they encountered in what is now Eastern Canada. Down-to-earth, egalitarian, consensus-driven.

Deep South

Established by slave lords from English Barbados as a West Indies-style slave society. Modeled on slave states of the ancient world — democracy was the privilege of the few. Fights for rollbacks of federal power, taxes on capital and the wealthy, and environmental, labor and consumer protections.

Spanish Caribbean

Legacy of the maritime component of Spain’s New World empire with hub in Havana. Includes Puerto Rico and other territories in Caribbean basin.

*Two counties are shared between two cultures: Cook County, Ill. (Yankeedom/Midlands) and Orleans Parish, La. (New France/Deep South). Alaska is divided among Left Coast, Far West and First Nation, a vast region of Arctic and sub-Arctic North America where indigenous peoples remained in effective control. Hawaii is part of Greater Polynesia.

By The New York Times | Source: Colin Woodard

Look at county-level maps of almost any closely contested presidential race in our history, and you see much the same fault lines: the swaths of the country first colonized by the early Puritans and their descendants — Yankeedom — tend to vote as one, and against the party in favor in the sections first colonized by the culture laid down by the Barbados slave lords who founded Charleston, S.C., or the Scots-Irish frontiersmen who swept down the Appalachian highlands and on into the Hill Country of Texas, Oklahoma and the southern tiers of Ohio, Indiana, Illinois and Missouri.

The Quaker-founded Midlands, the swing region of American politics that makes up a great swath of the heartland, has often been the physical and political buffer between rival regional coalitions, its pluralistic, community-oriented culture at peace neither with the Yankee’s utopian drive to engineer social improvements nor Southern culture’s emphasis on individual freedom above all else. It played the kingmaker’s role again in 2016.

Pundits speak of the “solid South,” but Yankeedom has had stalwart allies as well. The people of the slender Pacific coastal plain from San Francisco to Juneau, Alaska, have backed the same horse as the Yankees in virtually every contest since their states joined the union, and in opposition to the candidate favored by the majority of people in the interiors of their own states. Yankees have long found partners in the Dutch-founded zone in and around New York City and, in recent decades, the sections of the Southwest that were effectively colonized by Spain in the 16th to 19th centuries.

The cultural differences between these regional cultures have a greater effect on our politics than the size and density of our communities. I ran the numbers for the past three presidential elections, comparing the voting behaviors of rural and urban counties within each “nation.” In five regional cultures that together constitute about 51 percent of the United States population, rural and urban counties voted for the same presidential candidate, be it the “blue wave” election of 2008, the Trumpist upheaval of 2016 or the more ambiguous contest in between. In the Deep South, Greater Appalachia, New France and the Far West, rural and urban majorities supported Republican candidates in all three elections, whether voters lived in central cities, wealthy suburbs, mountain hollers or the ranches of the high plains. In El Norte, the Spanish-colonized parts of the Southwest, both types of counties — empty desert or booming cityscapes — voted Democratic.


In two more regional cultures — Yankeedom and the Left Coast — rural counties only recently opposed their urban, Democrat-supporting neighbors. Rural Yankee counties went for Barack Obama by 5.9 percent in 2008 and were split in 2012, with Mitt Romney winning by a razor thin 0.02 percent. The Left Coast’s rural counties went for Mr. Obama in both elections, by 10.5 and 5.6 percent. Donald Trump — who had some of the most communitarian campaign promises of any Republican nominee in decades — flipped many rural Yankee and Left Coast counties in 2016 — he won the Yankee ones by 18.3 points, the Left Coast ones by 2.7 — tipping Wisconsin and Michigan into his camp.




The Partisan Landscape

2016 presidential vote by region.



+5
+15
+25
Winning margins
in percentage points:
TRUMP
LEFT
COAST
CLINTON
YANKEEDOM
FAR WEST
NEW
NETHER-
LAND
MIDLANDS
TIDEWATER
GREATER APPALACHIA
DEEP SOUTH
EL NORTE
SPANISH
CARIBBEAN
NEW FRANCE
Greater Appalachia
25
The regions ranked by partisan vote margins in the 2016 presidential election:
New France
22
Deep South
9
Far West
9
0.4
Midlands
8
Yankeedom
14
Tidewater
14
Spanish Caribbean
19
El Norte
25
New Netherland
34
Left Coast


Winning margins in percentage points:
+5
+15
+25
TRUMP
CLINTON
NEW
NETHER-
LAND
LEFT
COAST
FAR
WEST
MIDLANDS
YANKEEDOM
TIDEWATER
DEEP SOUTH
EL NORTE
SPANISH
CARIBBEAN
GREATER
APPALACHIA
NEW
FRANCE
The regions ranked by partisan vote margins in the 2016 presidential election:
25
Gtr. Appalachia
22
New France
9
Deep South
9
Far West
0.4
Midlands
8
Yankeedom
14
Tidewater
14
Spanish Carib.
19
El Norte
25
New Netherland
34
Left Coast
By The New York Times | Source: Colin Woodard
In fact, only two regional cultures consistently exhibit urban-rural vote splitting, and together they account for just 15 percent of the population. Only in the Midlands has the split been a stark one. While urban Midlanders preferred Democrats by between six and 18 points in the three elections, their rural counterparts voted Republican by 15.2, then 22.6 and finally a blistering 40.8 in 2016. As in Yankeedom, this dramatic Trump surge among rural voters had an outsize effect on the Electoral College outcome.

Nor should cities be assumed to be reliable bastions of Democratic support. The core counties of major metropolitan areas, including Phoenix, Jacksonville, Fla., and Virginia Beach — and lots of smaller ones, like Boise, Idaho; Colorado Springs; Mobile, Ala.; Knoxville, Tenn.; Tulsa, Okla.; and Wichita, Kan. — went Republican in all of these presidential elections. Notably, not one of them is in Yankeedom, the Left Coast or New Netherland, even though those nations account for nearly 30 percent of the United States population.

Look at counties within medium-size metros — those with a population of between 250,000 and one million. Instead of being blue strongholds, such counties in four of the “nations” — Deep South, Greater Appalachia, Far West and New France — voted for Republicans in all three contests, and those in the Midlands did the same in the latter two. Yet in the reliably “blue” nations, this same county type supported Democrats. Collectively, the very biggest core metro counties do vote Democratic in every nation, but by margins that vary enormously, from nine to 20 points in most “red” regions to 40- and 60-point landslides in “blue” ones.

Why the differences? I’ve long argued that United States politics resolves around the tension between advancing individual liberty and promoting the common good. The regional cultures we think of as “blue” today have traditions championing the building and maintenance of free communities, today’s “red” ones on maximizing individual freedom of action. Our presidential contests almost always present a clear choice between the two, and the regions act accordingly.

The 2016 election was an exception, largely because Mr. Trump did not campaign as a traditional laissez faire Republican. Rather, he promised government would rebuild infrastructure and the manufacturing sector, shield workers from imports and migrant workers, replace the Affordable Care Act with “something terrific” and protect Social Security and Medicare. This delivered critical dividends in rural parts of the communitarian-minded Midlands and Yankeedom, flipping scores of counties that had voted for Mr. Obama twice, most of them in the Upper Mississippi Valley, northern New England and upstate New York.


In the midterms, this presents a challenge for Mr. Trump and his Republican allies because the president has failed to deliver on most of those communitarian promises. Statewide polling has the president underwater across the Midlands and Yankeedom, even as he remains popular in states dominated by the Deep South and Greater Appalachia.

Political handicappers reckon a half-dozen Republican House districts representing these rural areas are within reach for Democrats in November. That southwestern Wisconsin went for the Democrat in April’s state Supreme Court justice election suggests the 2016 tsunami is rolling back toward the deep blue sea.

There are many factors that influence political behavior — race, class, gender and occupation, just to name a few — and good analysis incorporates several. But ignoring regionalism — with boundaries more properly defined — is to miss perhaps the most powerful variable of all.

Colin Woodard (@WoodardColin), a staff writer at the Portland Press Herald in Maine, is the author of “American Nations: A History of the Eleven Rival Regional Cultures of North America” and, most recently, “American Character: A History of the Epic Struggle Between Individual Liberty and the Common Good.”

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