- Donald Trump has once again floated a tax hike on people who make several million a year as part of GOP tax negotiations. But the proposal, which cuts against deeply held Republican principles, would do little to ding the runaway incomes of the affluent, tax policy experts say. It also wouldn’t raise much money for the budget deficit.
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.
Former Trump strategist Steve Bannon, who has discouraged cutting Medicaid, also spoke out in favor of raising taxes on the highest earners. “The current system we have is not sustainable,” Bannon said last month, according to the Associated Press. “I think the alternative is budget cuts. And … it has to be tax increases on the wealthy.”
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.
Capital gains, tax-base pains
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.
“Raising the top income tax rate will have very little impact on most of these billionaires,” Sarah Anderson, program director at the Institute for Policy Studies, told Fortune recently. “That’s because they take very little compensation from their companies.” Amazon founder Jeff Bezos received a $81,000 salary every year he was CEO; Mark Zuckerberg takes a salary of $1 from Meta, and Elon Musk has never accepted the salary Tesla paid him before it eliminated it altogether, according to the company’s securities filings.
“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.
Fiscally traditional Republicans have made their opposition to any tax hikes clear. That group includes Trump advisors Steve Moore and Larry Kudlow and GOP Sens. Dave McCormick of West Virginia and Ted Cruz of Texas
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.”
Plugging a $4.5 trillion hole
Trump has toyed with some version of a millionaires’ tax for months. He recently told Time he “loves” a millionaire tax but that supporting one would lose him an election.
The very fact that the Republican Party, which has made a “No New Taxes” pledge a cornerstone of its identity since the 1980s, is even considering tax hikes is notable. The GOP is looking to offset about $4.5 trillion in spending increases from extending the 2017 Tax Cuts and Jobs Act and possibly exempting Social Security income and tips from taxes, two priorities of Trump’s.
A high-income tax “would be a small portion of the total—it definitely would not make up for the challenges Republicans are facing on the spending side,” Garrett Watson, director of policy analysis at the Tax Foundation, told Fortune. (The Tax Foundation has advocated for generally lowering tax rates while broadening the tax base by removing deductions and carve-outs.)
“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.”
