Tax reformists shouldn’t urge even more tax overreach

Recently, a letter signed by former House Speaker Newt Gingrich, Americans for Tax Reform President Grover Norquist and more than 30 other leaders of conservative groups urged President Trump to use “existing executive authority” to index capital gains taxes to inflation.

It is a good idea wrapped up in lunacy — the same type of lunacy that has normalized presidents acting first and Congress asking questions later.

We have seen that mentality in trade polices just rebuked by the Supreme Court and in foreign affairs, where recent military actions in Iran and Venezuela were undertaken without congressional authorization.

To be clear, the letter’s signers are right on tax policy. Heck, while we’re at it, we should eliminate capital gains taxes altogether. They double-tax income and discourage saving. The central issue is not fiscal responsibility, either, although tax cuts should be balanced with spending cuts — especially given our fiscal situation.

No, the problem is the method.

Using the presidency to change a policy that belongs to Congress may work for a while. But we all know what happens next: The moment a president hostile to the idea of reaping a profit from investment takes office, those same unilateral powers can be used in the opposite direction. And this doesn’t even account for whatever creative new taxing authority a future president might claim once the precedent is set.

The fear of that possibility is precisely why the Constitution separates and limits powers in the first place.

The letter claims that the president and Treasury Department have the authority to redefine cost basis “in such a way that the inflation tax on savings can be eliminated” and that they can take this action “without having to go to Congress.” In effect: The tax code is vague enough on the treatment of capital gains that the president can decide for himself.

That’s very similar to the justification the government used to defend Trump’s unilateral tariffs — that the power to regulate importation granted in the International Emergency Economic Powers Act granted the president broad discretion to levy taxes on imports. Just a day after the letter was published, the Supreme Court reminded us that “The Framers did not vest any part of the taxing power in the Executive Branch.”

That should settle the matter. It probably won’t. It’s become the norm for both Republicans and Democrats, including in Congress, to let a president do anything that favors their priorities.

Advocates for the capital gains change have pointed to a statement from President Trump during his first term claiming he had the authority to change the tax treatment of capital gains. But claiming an authority does not make it real. Every president asserts powers he does not possess to justify constitutional overreach — whether it’s Trump’s tariffs or Joe Biden’s attempt to cancel student loans.

Everyone in Washington knows this, of course. That’s why they appeal to a handful of legal analyses defending their proposal. Two of three sources cited by Americans for Tax Reform acknowledge that in 1992, the George H.W. Bush administration considered, and discarded, the same idea. Bush’s Department of Justice and Office of Legal Counsel concluded he lacked the authority, and every subsequent administration refused to exercise that discretion.

Surely many of the signers of this letter celebrated the court’s ruling on the president’s unilateral tariffs. So, why advocate for procedures that would dismantle another executive limit on taxation?

I get it. Policymaking is frustrating. It seems like the other side makes advances with every opportunity they get. Those who put the Constitution first trudge along and hope for an occasional win. Bypassing the process looks more appealing each day.

But we would do well to remember the late Milton Friedman, who, after listing the names of federal departments he would like abolished, was asked what he would do if made dictator for a day. Rejecting the question out of hand, Friedman cut off the interviewer: “I don’t want to be made dictator,” he said, adding “If we can’t persuade the public that it’s desirable to do these things, we have no right to impose them even if we have the power to do it.”

Believing in limited government means defending its limits, even when they frustrate our policy preferences. Rather than circumventing the legislative process, it falls to us to persuade voters and legislators that low and fair taxes are in their interest. Otherwise, those taxes will be back and will likely be worse.

Follow the Constitution. Stop ceding authority to the presidency.

Joshua Rowley is a Gibbs Scholar and research fellow with the Mercatus Center at George Mason University and former economist for the U.S. House Committee on the Budget.

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