Second Stimulus Check: What Is a Capital Gains Tax Cut?

Amid stalled stimulus relief talks, President Donald Trump is pushing for a number of new measures to bring economic aid, among them a capital gains cut. After signing an executive order targeting enhanced unemployment benefits, a payroll tax cut, evictions, and student loans, the president this week began voicing his support of another tax break, but what exactly is a capital gains tax cut?

As Investopedia notes, the capital gains tax is "a levy assessed on the positive difference between the sale price of the asset and its original purchase price." For example, Turbotax explains that "if you sell something for more than your 'basis' in the item, then the difference is a capital gain, and you’ll need to report that gain on your taxes." That basis is typically what you initially paid for the item. Capital gains treatment only applies to "capital assets" such as stocks, bonds, jewelry, coin collections, and real estate property. A capital gains tax cut, therefore, would reduce how much people would need to pay on realized gains after the asset and sold.

Trump had first pushed the idea in 2019, though he had abandoned it in September of that year after concluding that the cuts would not benefit middle-income earners, according to the National Review. Now, however, he seems to be walking back on that conclusion, again voicing his support for such a tax cut this week. Speaking during his Monday news conference, Trump argues that such a tax cut would "create a lot more jobs." White House economic adviser Larry Kudlow suggested that it would help "jobs, investment, productivity and wages." Currently, at 20%, the president told FOX Business' Maria Bartiromo on Thursday that he wishes to cut the tax to 15%.

The suggestion of a capital gains tax break, however, has largely been met with pushback from those who warn that it will do little to aid those currently struggling. While the tax applies to anyone who sells a capital asset, it mostly affects the wealthy. A May 2020 report from the nonpartisan Tax Policy Center noted that 75% of tax filers who reported capital gains last year were in the top 1% of earners and only approximately 6% of households in the bottom 80% of earners claim any capital gains.

Despite his push for a tax cut, at the moment, it seems unlikely to happen. A capital gains tax cut would require Congress to pass legislation, and the Democratic-led House of Representatives would likely vote down such a proposal.