AP Photo/Carolyn Kaster
Steve Bannon has reportedly been pushing to raise taxes on the wealthy to offset deep tax cuts for middle and working class Americans.
Bannon, who serves as President Donald Trump’s chief strategist, has told colleagues he wants the top income tax bracket to “have a 4 in front of it,” according to Jonathan Swan of Axios. Currently, the top marginal tax bracket is 39.6 percent.
Any effort to raise the top marginal rate is sure to alienate a lot of traditional Republicans and conservatives. It would also run counter to the plan introduced by Treasury Secretary Steven Mnuchin and National Economic Director Gary Cohn in April. That plan had the top rate falling to 35 percent.
Raising the top rate, however, would make it more difficult for the administration’s enemies to portray its tax proposals as a giveaway to the rich. One administration official who spoke on the condition of anonymity said that one idea that has been floated inside the White House is to create a “millionaires tax bracket” with a top marginal rate above 40 percent. While this would not generate much revenue, it might defuse the argument that Trump administration’s tax cut would mostly benefit the rich.
Raising the top rate would also not necessarily raise taxes on many Americans. For example, a tax plan that included a 44 percent rate on income over $1 million but compressed the current brackets from seven to four by lowering the 15 percent bracket to 10 percent, the 33 and 28 percent brackets to 25 percent, and lowering the current 39.6 percent to 35 percent, would very likely lower the effective tax rate on nearly everyone. That’s because the bulk of income would be taxed at the lower rates, with the new top rate applying only to income above the $1 million mark.
Even if the 44 percent rate applied to all income now in the 39.6 percent bracket, the effective tax rate for most taxpayers would fall if the lower brackets are compressed downward as described above.
In other words, even a big rise in the top marginal rate can amount to a tax cut if the rates on the lower brackets are reduced. That might make a higher top rate easier to swallow for some conservatives and Republican lawmakers.