GOP Senators Propose $200 Billion Tax Cut Without Congressional Approval

Republican Senators Ted Cruz (Texas) and Tim Scott (South Carolina) are advocating for a $200 billion tax cut aimed at capital gains, which they propose to implement without prior authorization from Congress. In a letter addressed to Treasury Secretary Scott Bessent, they argue that adjusting the capital gains tax basis for inflation would stimulate savings, encourage investment, and ultimately create jobs across the nation. The senators contend that the current tax structure penalizes savers and restricts capital flow into the economy, thereby hindering economic growth.

The HillCruz, Scott Seek Capital Gains Tax Cut, Skirting CongressThe Fiscal Times

Cruz and Scott assert that the proposed tax relief would alleviate some instability in the housing market. They note that many homeowners are reluctant to sell their properties due to the substantial capital gains taxes they would incur, creating a "lock-in effect." By adjusting the capital gains cost basis for inflation, they believe it would incentivize long-term homeowners to downsize, thereby increasing the availability of family housing.

The Hill

Despite the potential benefits outlined by Cruz and Scott, the proposal faces significant legal challenges. Critics, including Kyle Pomerleau from the American Enterprise Institute, argue that such a change would likely be illegal without congressional approval, referencing a 1992 opinion from the Justice Department’s Office of Legal Counsel. Furthermore, a 2018 analysis by the Penn Wharton Budget Model indicated that indexing capital gains to inflation could reduce government revenues by $102 billion over a decade, with 86% of the benefits accruing to the top 1% of earners. This raises concerns about the equity of the proposal, as the bottom 80% of earners would receive only 1% of the benefits.

The Fiscal Times

In their letter, Cruz and Scott emphasized the need for tax reform to support economic growth and housing market stability. They stated, “Adjusting the capital gains cost basis for inflation incentivizes those who have held property for decades to downsize and list their single-family homes for sale.” However, Pomerleau criticized the proposal, suggesting it would not significantly impact economic growth and could exacerbate wealth inequality.

The Hill

As mortgage rates recently fell below 6% for the first time in over three years, the proposal may be viewed as aligning with President Donald Trump’s economic agenda, particularly his focus on the housing market. It remains uncertain how Secretary Bessent will respond to Cruz and Scott's request, but the outcome could have significant implications for tax policy and housing supply in the United States.

The Hill

• “This inflation tax unfairly penalizes savers and locks up capital that would otherwise flow back into the economy through new investment and higher wages, which slows economic growth,” — Ted Cruz, U.S. Senator

The Hill

• “It is wrong to tax inflation,” — Grover Norquist, Anti-Tax Activist

The Fiscal Times

• “Not good tax policy if you don’t adjust other parts of the system for inflation, most importantly reducing people’s interest deduction to only real interest–no longer allowing deductions for the inflation component of interest,” — Jason Furman, Harvard Professor

The Hill

• “Kyle Pomerleau, a tax policy expert at the conservative American Enterprise Institute, said on social media that the proposed change would likely be illegal.” — Kyle Pomerleau, American Enterprise Institute

The Fiscal Times