In an interesting move that says much about the political nature of taxes, a new report claims that the Trump administration is considering a proposal that — if adopted — would mean a significant tax hike for some Americans.
According to Bloomberg:
[Steve] Bannon supports paying for middle-class tax cuts with a new top rate of 44 percent for those who make more than $5 million a year, according to a person familiar with his thinking. The lawmaker, who asked not to be named because discussions are private, said the rate pitched was 42 percent, which would be acceptable to some conservatives, as long as it’s coupled with a low corporate rate and other changes like repealing the alternative minimum tax. The current top individual rate is 39.6 percent.
The revenue generated by the tax hike would not be earth-shattering — only $18 billion a year, according to the IRS — but it will send an important political signal to Trump supporters and to Democrats.
According to Bloomberg:
The proposal could give President Donald Trump’s administration momentum to drum up popular support to rewrite the tax code, while wealthy individuals would get other tax benefits, such as the repeal of the estate tax, to partially offset the higher rate.
Tax hikes are historically anathema to Republican voters — just ask George “Read My Lips” Bush — and it remains to be seen how popular a tax hike will be with Republicans today.
However, this tax hike is said to be linked to proposals Conservatives have long advocated, such as a middle-class tax cut and a lower corporate tax rate.
Often the criticism of tax hikes — especially those hikes aimed at the very rich — is not that the tax hike would drive the Jeff Bezos’ of the world into poverty. The rich themselves are often the loudest advocates for a tax hike on the rich.
Rather, the criticism of tax hikes on the wealthy would cause the rich (despite their boasts) to park their cash where the tax rate is more favorable to them.
This effect is often seen in tax hikes for the wealthy at state levels.
New Jersey, which has one of the heaviest tax burdens in the nation, has lost “[m]ore than $70 billion in wealth…between 2004 and 2008 as affluent residents moved elsewhere.”
More recently, New Jersey lost a significant amount of tax revenue when billionaire David Tepper moved his “personal and business domicile” to Florida.
Furthermore, one questions the need for an $18 billion dollar tax hike at a time when federal tax revenues are already at a record highs and government waste continues continues to haunt us — such as the $45 billion spent on redundant government agencies, or $700,000 to study pig flatulence in Thailand.
Although there is arguably no fiscal need for a tax hike that would only raise $18 billion dollars a year (and may, in fact, cost the U.S. revenue if enough of the wealthy decide to move their cash outside the country), the tax hike may be seen as needed by the Trump administration to get Democrat votes for the rest of his tax reform agenda.