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.
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Anti-tax crusaders argue that higher taxes on the wealthy depress innovation and investment because those taxpayers end up with less after-tax capital to recycle into the economy.
Plausible.
But it’s also true that we’ve had far higher taxes on the wealthy in the past, including eras such as the 1950s, which many Americans think of as the nation’s heyday. And a higher tax on wealthy individuals would be less damaging now, given that the 2017 law cut the corporate rate from 35% to 21%.
Lower tax rates, meanwhile, have coincided with a soaring national debt. Most budget experts feel that a combination of spending cuts and tax hikes is inevitable at some point to stabilize the size of debt relative to the economy. Virtually all tax increases start with the wealthy, so a tax hike on top earners is a matter of when, not if.
Nonetheless, Trump’s support for a millionaire tax is tepid at best. In a recent social media post, he acknowledged that the tax as he has proposed it is “tiny.” He has also shot down his own idea in the past. In an April interview with Time, Trump said he was against a millionaire tax “because a lot of the millionaires would leave the country.” He seems to have changed his mind, at least for a while.
With Trump’s support so wishy-washy, Republicans in Congress are unlikely to include any tax hike on the wealthy in a final package. That bill will still be a bruising battle over how to hit the $4 trillion price tag, given that the cost of the Republican tax cut wish list runs anywhere from $5 trillion to $9 trillion.
Some Republicans want to slash Medicaid, but others are standing in the way of that. Another GOP plan is to end some of the green energy tax breaks President Biden signed into law — except those tax breaks benefit workers in red states more than blue ones. Trump’s tariffs are raising some additional revenue, but at the cost of a consumption tax paid by millions of Americans that will reduce economic growth.
Just about every spending or tax change under consideration has an ugly downside, in fact, which is why voters don’t mind raising taxes on the richest Americans. Somebody will have to pay sooner or later, and the wealthy minority simply have much fatter wallets than the overspent majority.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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