Trump's "weak tea" tax on the rich
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President Trump is half-heartedly floating the idea of raising taxes on rich people, creating a new tax bracket for those individuals earning more than $2.5. million.
Why it matters: This isn't as meaningful as it looks — the few high-income people it affects won't likely feel too much pain from the proposal, and other tax cuts under consideration would help offset any increase for them.
- But it's still surprising and extraordinary that the GOP, which has been cutting income taxes on rich people since the 1980s, is proposing anything like this at all.
The big picture: Republicans have been actively working to be seen as a working class party, not the party of the super rich.
- "This is to pay for working- and middle-class tax cuts that were promised, and protect Medicaid," an administration official told Axios' Hans Nichols.
How it works: Under the Trump idea, the tax rate on ordinary income past $2.5 million for an individual, or $5 million for a married couple, would rise 2.6 percentage points.
- That would create a new top tax bracket of 39.6% — exactly what the top tax bracket was back in 2017, before Congress passed Trump's first tax bill.
Yes, but: Back then the top tax bracket covered individuals earning more than $418,400 — this year the top bracket starts at $626,350 for an individual or $751,600 for a married couple.
- With this new proposal, all income between $626,350 and $2.5 million would still be taxed at 37%, a lower rate than the top tax rate in 2017 before Trump's first tax bill passed.
- The tax hike would only apply to ordinary income — but the incomes of the rich disproportionately come from capital gains. Those tax rates wouldn't change.
By the numbers: The proposal would impact about 0.1% to 0.2% of all taxpayers, estimates chief economist Josh Bivens of the left-leaning Economic Policy Institute, who a few years back floated the idea of levying a 10% surtax on those with incomes above $2 million — a far more painful measure.
- Those folks bringing home these jumbo paychecks likely include a lot of high-paid doctors, some professional athletes and executives.
For the record: "The President has said he himself, personally, would not mind paying a little bit more to help the poor in the middle class and the working class in this country," White House press secretary Karoline Karoline Leavitt said on Friday.
- But, she added "these negotiations are ongoing on Capitol Hill."
The bottom line: The Trump idea would likely raise under $30 billion a year, Bivens estimates. That's $300 billion for ten years — compared to $5 trillion cost of the tax cut extension.
- The Tax Policy Center at Brookings estimates that about 80,000 households would be impacted if there's a new bracket that starts at $2.5 million for individuals — that would raise $8.2 billion in 2025.
- "This proposal is better than nothing, but it's really weak tea," says Bivens.
