The Trump administration is discussing a surprising option to help fulfill his campaign-trail promises: Allowing the richest Americans’ tax rates to rise in return for cutting taxes on tips, a senior White House official tells Axios.
Some White House officials believe letting income taxes on the very highest earners rise would buy breathing room on other priorities, and help blunt Democrats’ attacks as they seek to extend President Trump’s 2017 tax cuts.
Officials say all discussions are preliminary and nothing is set in stone.
Currently the top income tax rate is 37%, charged on income above $609,351 for an individual or $731,201 for a married couple.
If the 2017 law were allowed to expire, that would jump to the pre-2018 rate of 39.6%, and lower the threshold above which the top rate applies.
Around 1% of taxpayers are in that top bracket, though they pay a disproportionate share of income taxes.
Under the budget reconciliation rules that Republicans seek to use to extend the tax cuts, that would free up more revenue that could be used to fulfill some of Trump’s populist promises, such as eliminating taxes on tips.
It would aim to flip the script on Democrats, whose messaging focuses on Republicans potentially slashing Medicaid and enlarging the deficit in order to fund tax cuts for the super-rich.
“If we renew tax cuts for the rich paid for by throwing people off Medicaid, we’re gonna get f–king slaughtered,” the White House official said.
As the GOP under Trump becomes more of the party of working-class voters, the political risks of raising rich people’s taxes are relatively small, compared to the payoff of cutting taxes on tips in the growing service-sector economy.
A majority of Americans, including a plurality of Republicans, support raising taxes on wealthier individuals, polls have shown.
Many Republicans would be reluctant to go along. A bedrock idea of conservative economic philosophy is idea that low taxes fuel economic growth.
Raising rates on top earners, even if only by 2.6 percentage points, would be anathema to many Republican donors and elected officials who have made tax cuts core to their party’s brand.
Treasury secretary Scott Bessent has warned of “economic calamity” if the 2017 tax cuts are not extended.
Among Ronald Reagan’s signature achievements was lowering the top marginal tax rate from 70% to 28% by the time he left office.
A signature George W. Bush achievement was reducing the top marginal rate to 35%, from the Clinton-era 39.6%.
If Trump were to sign legislation that allowed the top rate to move upward, it would be a reversal of that pattern.
