As Republicans in Congress try to negotiate a fiscal policy bill, a decidedly un-Republican concept is back on the table: Raising the tax rate on the highest earners.
President Donald Trump reportedly asked House Speaker Mike Johnson this week to create a new tax bracket for people making over $2.5 million, the New York Times reported and Fortune confirmed.
Trump is also considering ending a loophole that allows finance professionals like hedge-fund and private-equity managers to pay lower tax rates than ordinary workers, and taxing stock buybacks by corporations, the Times reported. The decidedly populist proposals appeal to the MAGA base, which often stresses the party’s responsibility to working-class people.
But the type of modest tax increase that’s being proposed would barely dent the ultra-rich, whose wealth is reaching astronomical levels, say policy experts.
“This is largely symbolic—this is not going to have a significant revenue effect and it’s certainly not going to have a significant effect on inequality,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.
Taxing income over $2.5 million a year at 39.6%, rather than its current 37% rate under the supposedly temporary Tax Cut and Jobs Act, would raise about $8.2 billion this year and affect $80,000 households, according to TPC estimates. “It’s just not a lot of people,” he said.
More to the point, millionaires and billionaires in the U.S. earn relatively little of their income in the form of salaries. “The higher you go up the income distribution, the less and less is ordinary income and more and more is capital gains,” Gleckman said. Those gains are subject to a lower tax rate that applies to income from investments, like stocks, bonds, mutual funds, real estate and the like.
The big tech millionaires and billionaires that MAGA, and Trump, occasionally clash with got there in part by holding vast amounts of stock in companies that grew at dizzying speed.
“Our tax code is really skewed toward the interest of people like these megabillionaires,” Anderson said.
“Most of their wealth is in stock, and they can avoid taxes altogether by holding on to these assets and borrowing against them,” she said. “If they do sell some of their stock… they do pay a tax on that income, but at a steeply discounted capital gains rate.”
According to a recent IPS report, Bezos saved $6.2 billion in federal taxes since 2017 thanks to paying a lower capital-gains rate, as opposed to ordinary income rate, on stock he’s sold.
“I’ve heard nothing about Republicans being open to equalizing the [tax] rate between capital gains and ordinary income or even raising capital gains tax, and certainly nothing about them supporting a wealth tax, or a billionaire income tax,” Anderson said.
Sen. Mike Crapo of Idaho said he was not on board with hiking taxes, but could be open to being persuaded.
“Right now I am not excited about the proposal, but I have to say there are a number of people in both the House and Senate who are,” Crapo told podcaster Hugh Hewitt this week. “If the president weighs in in favor of it, then that’s going to be a big factor that we have to take into consideration as well.”
“It’s still inconsistent with Republican principles,” he added.
The Tax Policy Center’s Gleckman agrees.
“It’s not going to change the revenue very much, and it’s going to give a lot of Republicans heartburn.”
