Republicans Consider Giving No Tax Cut to the Super Rich
Trump tells Congress hands off 401k plans, but GOP could keep top 40 percent bracket for the wealthy
Congressional Republicans, nervous about losses in revenue that would be caused by tax cuts, are considering keeping the top tax rate of 39.6 percent on the very rich.
Congressional Republicans are also reportedly considering capping 401(k) contributions — something that could irk middle-class workers and investors — but President Donald Trump said on Monday the proposal is a non-starter.
The top tax rate would stay in place, but some of the top earners would still get a tax cut.
House Republicans are thinking of keeping the top rate on people who make $1 million a year or more, according to a Monday report by Axios. Today, the top tax rate of 39.6 percent applies to those taking in $418,000 or more.
Under a House plan, the top tax rate would get cut to 35 percent for people making more than $418,000, all the way up to $1 million, annually. But the top rate, almost 40 percent, would remain the same for those who earn $1 million or more per year.
Grover Norquist, the influential anti-tax crusader and president of Americans for Tax Reform, was quickly out of the gate to say he thinks it’s a frivolous idea.
“I understand compromise, but why compromise with the sin of envy?” Norquist told Axios. “This isn’t the dumbest idea I have ever heard of, but it is in the top-20.”
But Norquist won’t get much support from the president on opposing the idea. The proposal to keep the top tax rate in place for the highest earners — those making more than $1 million — is likely a good populist pitch. It helps answer the Democrats’ inevitable argument that any GOP tax-cut package will benefit the wealthy at the expense of the middle class.
Further, Trump likely knows the rich will get other benefits, especially if their companies get rate cuts for small businesses and corporations. Trump feels full-business expensing is another idea that the rich will like, according to Axios.
The GOP-led Congress and Trump have proposed new tax brackets for individuals: 12 percent, down from 15 percent; 25 percent, down from 28 percent; and the top bracket of 35 percent, down from 39.6 percent. There would also be an invisible bracket of zero percent, for many who don’t have to pay any federal income tax. Trump and Republicans, additionally, want to cut corporate tax rates from 35 percent to 20 percent, and cap the top tax rate for unincorporated businesses at 25 percent.
On another front, congressional Republicans floated a much more risky idea to cap 401(k) contributions at $2,800 annually. Right now, Americans can contribute, before taxation, up to $18,000 annually. The proposal leaked to the press on Friday and was explained as one possible way to “pay” for the tax cuts, which Democrats believe will shrink federal revenues by $1.5 trillion over 10 years.
But 401(k) plans are popular, especially as private employers get rid of in-house pension plans. The value of U.S. 401(k) plans is about $4.7 trillion, according to the New York Post. Thus, middle-class investors weren’t the only ones who complained. Wall Street investors, who help manage the 401(k) plans, also complained loudly.
“We believe the best way to maintain or raise retirement plan participation and the resources available for retirement is to preserve the current system of tax deferral, which has encouraged millions of Americans to save for retirement,” said Mike McNamee, spokesman for the Investment Company Institute, a trade group, speaking to the Post.
On Monday morning, Trump shot down the idea, suggesting he would oppose — and possibly veto — the idea.
“There will be NO change to your 401(k),” Trump tweeted on Monday morning. “This has always been a great and popular middle-class tax break that works, and it stays!”
(photo credit, homepage images: Albert Gallatin…, CC BY-SA 4.0, by Benoît Prieur (Agamitsudo) / Grover Norquist, CC BY-SA 2.0, by Gage Skidmore ; photo credit, article images: Albert Gallatin…, CC BY-SA 4.0, by Benoît Prieur (Agamitsudo) / Grover Norquist, CC BY-SA 2.0, by Gage Skidmore)