A group of 42 Senate Democrats has sent a letter to Treasury Secretary Steven Mnuchin, urging him to refrain from unilaterally cutting capital gains taxes without congressional approval by indexing the tax rate to inflation.

The group, led by Senate Finance Committee ranking member Ron Wyden, D-Oregon, Senate Banking Committee ranking member Sherrod Brown, D-Ohio, and the Senate Minority Leader, Chuck Schumer, D-N.Y., argued Wednesday that cutting capital gains taxes would mostly benefit the wealthiest Americans, giving them an additional $100 billion over 10 years, and would be an illegal action that would defy longstanding Justice Department policy.

Their letter comes in response to an earlier earlier letter signed late last month by 21 Republican senators, led by Sen. Ted Cruz, R-Texas, urging Mnuchin to circumvent Congress by indexing capital gains rates to inflation (see Cruz pushes Mnuchin for quick action on capital gains tax break).

The letter from the Senate Republicans had argued that the current tax “treatment punishes taxpayers for the mere existence of inflation and is inherently unfair. Other tax provisions such as individual tax brackets are rightly adjusted for inflation annually. Capital gains ought to receive the same treatment.”

But the Senate Democrats contended that a capital gains tax cut would only exacerbate the problems with the Tax Cuts and Jobs Act in skewing the benefits to the wealthiest taxpayers.

“Indexing capital gains would double down on the 2017 $1.5 trillion tax giveaway with at least another $100 billion tax cut,” they wrote. “According to the Penn-Wharton Budget Model, more than 86 percent of the benefit of indexing capital gains would go to the top 1 percent of taxpayers, while just 2.5 percent of the benefit would go to the bottom 90 percent of Americans.”

They pointed out that the Tax Cuts and Jobs Act has been driving up the budget deficit, with the fiscal year 2019 deficit projected to be $896 billion, up from $666 billion in fiscal year 2017. The estimated $100 billion price tag for the proposal could be even higher, as it could lead to “tax sheltering opportunities,” according to the lawmakers.

“If Treasury indexes capital gains for inflation but does not also index capital expenses, like interest and depreciation, taxpayers would only pay taxes on the real portion of their gains while still deducting their full, nominal expenses,” they wrote. “Taxpayers could therefore use their losses on paper to offset tax owed. Indexing both gains and expenses for inflation, meanwhile, would increase the Tax Code’s complexity and the compliance burden on taxpayers. The proposal would do little to nothing to boost the economy as it would provide a windfall for existing capital assets, rather than incentivize new investment.”

The Democrats also contended that the Treasury Secretary lacks the authority to make such a change on his own. “Apart from these serious policy concerns, we do not believe Treasury has the authority to index capital gains through regulation,” they wrote. “Such action would defy longstanding congressional intent and Justice Department policy.”

They cited legal opinions written by the Treasury and Justice Departments in 1992 under President George H.W. Bush. “We again urge you to reject unilateral action on this issue,” they added. “To do otherwise would illegally circumvent Congress to benefit the most fortunate Americans. A major policy change like this one should be considered by Congress through regular order, where it can be weighed against competing priorities, like upgrading our failing national infrastructure, investing in health care or shoring up Social Security.”

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