The DC tax community has been buzzing since Axios reported the White House is considering rate hikes to offset their other tax priorities. This from the article:
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.
…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.
The rumor prompted the Wall Street Journal to publish a scathing editorial accusing Republicans of having “lost the plot about the pro-growth rationale for tax reform.”
So, are rate hikes really on the table? Also, does Axios really know somebody in the Trump White House?
Our reaction is to be extremely skeptical. This tweet from Punchbowl News pretty much sums it up:
Some additional thoughts.
Axios claims “A majority of Americans, including a plurality of Republicans, support raising taxes on wealthier individuals, polls have shown.” The Pew Research poll referenced asked: “Should tax rates on household income over $400,000 be raised a lot, raised a little, lowered a little, lowered a lot, or kept the same as they are now?” Fifty-eight percent of Americans responded the tax rates should be raised verses 36 percent responding they should be kept the same or lowered.
A couple of problems. First, the question is asked in the abstract, without any information regarding 1) how much these taxpayers already pay nor 2) how much respondents think their taxes should be raised.
We’ve addressed this issue many times, but it bears repeating. The American people are very reasonable about the maximum rates anybody should pay — including wealthy families — and the US Tax Code already taxes those families at rates that exceed what Americans think is reasonable.
Our friends at the Winston Group asked voters: “For each of the following, what is the maximum rate at which you think they should be taxed?” The average responses were consistently low, topping out at 31 percent for the wealthy and 17 percent for small and family-owned businesses.
But wealthy Americans already pay more than 31 percent of their income to the federal government. According to the Joint Committee on Taxation, top income earners pay an effective rate of 34 percent, while the bottom 50 percent of taxpayers pay 6.8 percent.
Bottom Line: The Tax Code is already more progressive than most Americans believe is fair.
Second, families making more than $400,000 represent about 2 percent of the population. That means 98 percent of the respondents to the Pew poll are effectively being asked: “Do you support raising taxes on somebody else?” A majority of respondents saying “yes” to that isn’t really news. What is news is how many respondents said no.
They understand that the “raise taxes on the rich” argument is premised on a lie that wealthy families and business owners don’t pay their fair share. According to most Americans, they pay more than their fair share and will pay even more if Congress fails to extend the TCJA’ s expiring provisions.
So count us skeptical of the tax hike story and on the side of most Americans. We support reasonable tax rates for everybody, including all those Main Street businesses that employ the majority of workers out there.