For all his huffing and puffing about them and their nefarious loopholes, President Trump and his “hedge fund guy”-stocked administration have never done much to punish those paper pushers in the pocket, except inadvertently by punishing people who don’t vote for him. And just as often, it inadvertently hands those hedge fund guys a major tax windfall through carelessness and sloppiness before (probably ineffectually) trying to roll it back.

Speaking of slapdash policymaking and unintended consequences, Trump is considering adding to his collection of ineffective economic stimulus executive orders with another, indexing capital gains for inflation. While this would almost certainly not “create a lot more jobs” as Trump promises, it would be kind of a pain in the ass for hedge funds.

There are other problems, like the paperwork mess of having to take the Consumer Price Index into account when you calculate the cost basis of investments that you sell….

Let’s say the dumb money (you and I) earn 4% on our investment and the hedge fund earns 10%. Inflation is 3%. So you and I had a real return of 1% and the hedge fund had a real return of 7%. But since we’re all being taxed on our total return, not just the real portion, the effective tax on the real portion is much higher for us than it is for the hedge fund.

On the other hand, as with the SALT deduction limits, we’re pretty sure the hedge fund guys will get over it.

Most of the benefits would go to high-income households, with the top 1% receiving 86% of the benefit, according to estimates in 2018 by the Penn Wharton Budget Model.

Trump’s Capital Gains Taxation Idea Could Have a Surprising Victim [Bloomberg Businessweek]
Trump Says He’s ‘Seriously’ Considering Capital Gains Tax Cut [Bloomberg]