Opinion
Most wealthy Americans think they deserve low taxes. There’s a strong counterargument, however, and President Trump is the latest policymaker to invoke it.
Trump wants Congress to raise the tax on individuals with incomes of $2.5 million or more and on married couples with incomes above $5 million. The current marginal income tax rate on those workers is 37%. Before the Trump tax cuts of 2017, the top rate was 39.6%. Trump's idea is to push the marginal rate back to 39.6% for very top earners.
Trump could go further. His version of the millionaire tax would raise just $2.2 billion per year, according to the Penn Wharton Budget Model. For a government that spends $6.9 trillion per year, $2.2 billion is basically nothing.
But if the 39.6% rate kicked in at incomes of $1 million or more, it would raise a more substantial $22 billion per year, according to Penn Wharton. And if Congress simply let the top marginal tax rate return to its earlier incarnation, the 39.6% rate would kick in at around $547,000 in earnings and raise $40 billion per year, which is in the ballpark of real money.
This is a live issue now because all of the individual income tax cuts enacted in 2017 expire at the end of 2025. Republicans who control Congress are working on a bill to extend those tax cuts either temporarily or permanently. They’re also trying to cram in some of Trump’s campaign promises, such as eliminating the tax on income from tips and overtime pay.
Read more: How does your tax bracket affect how much you'll pay?
The 2025 tax bill is a heavier lift than the 2017 law for one simple reason: The national debt, at $36.2 trillion, is nearly double what it was in 2017. The new tax-cut bill will add to the debt no matter what, but Republicans are trying to find ways to limit the swelling to $4 trillion during the next 10 years. To get all the tax cuts they want, they’ll have to cut spending or find new taxes to bring in additional federal revenue.
Raising the tax rate on the wealthy would help Trump in ways that go beyond a bit of additional federal revenue. Americans broadly favor higher taxes on top earners. Pew Research, for instance, finds that 74% of Democrats and 43% of Republicans favor higher taxes on Americans earning $400,000 or more. Overall, 58% favor higher taxes.
A millionaire tax might also help address a problem Republicans faced with the 2017 tax cut. That law turned out to be unpopular because many Americans felt it favored businesses and the wealthy over ordinary workers. Six months after the law went into effect, for instance, a Politico poll found just 37% of voters approved of the law. Only 25% said they had noticed that their own taxes went down. Democrats capitalized by blasting the law as a gift to the rich and retaking control of the House of Representatives in the 2018 midterm elections.