Millionaire Tax Hike Divides Republicans in Trump Cut Debate

Republicans are splintering over a proposal to create a new 40% tax bracket for those earning $1 million or more as a way to offset a raft of new tax cuts Congress is looking to pass later this year.

House Freedom Caucus Chairman Andy Harris says he is open to the creation of a new 40% tax bracket for those earning $1 million or more, lending credence to an idea being discussed at the White House to increase levies on the highest earners.

Harris said in an interview on Monday that he views the millionaires’ tax rate as a “reasonable way to pay for” President Donald Trump’s campaign pledge to eliminate levies on tipped wages.

“You are only raising it a couple of points,” the Maryland Republican added. The current top tax rate is 37% for individuals earning more than $626,350 a year.

House leaders downplayed the idea on Tuesday, with Speaker Mike Johnson declining to comment on the specifics of the millionaire tax rate, but adding “generally we’re trying to reduce taxes here.”

Representative Steve Scalise, Johnson’s No. 2 in the chamber, said their “No. 1 goal is keeping rates where they are and preventing a tax increase.”

Andy Harris (left), Steve Scalise (center), Mike Johnson

Photographer: Al Drago/Bloomberg

Senator Thom Tillis, a North Carolina Republican, in contrast said that he’d consider letting the top rate spring back to 39.6% — the highest bracket before Trump’s first-term cuts — as long as there were some parameters around it. In particular, he said there should be measures to reduce levies for owners of privately held companies that pay their business taxes on their household returns.

The discussion about a new 40% tax bracket for millionaires comes after decades of Republicans opposing any form of tax increase. But the GOP under Trump has grown more populist, allowing some lawmakers to back away from the party’s long-held stance that tax cuts for top earners and corporations are a prime way to energize the economy.

Earlier: Republicans Debate Hiking Tax Rate to 40% for Millionaires

Congress is seeking to pass an extension of Trump’s first-term overhaul, the Tax Cuts and Jobs Act, in the coming months. That bill faced a backlash when it passed in 2017 for skewing many of the benefits to large corporations and high-earning Americans.

Republicans are considering a series of new tax cuts, including eliminating taxes on overtime pay and creating new write-offs for older people and car buyers. But fiscal constraints in the legislation mean that lawmakers will have to find either spending reductions or tax increases to offset the cost of their tax priorities.

Harris leads the ultra-conservative House Freedom Caucus, which has several dozen members. The group, which has not taken a public position on a 40% millionaire tax rate, is an influential voting bloc and has the power to block legislation in the House given the Republican Party’s narrow margins in the chamber.

The House as soon as this week could vote on a budget resolution that unlocks the process for Republicans to pass a tax cut bill on GOP votes alone.

Harris is opposed to the Senate version of the budget, arguing it doesn’t require enough spending cuts.

(Updates with opposition from Johnson and Scalise. An AI summary previously at the top of the story was removed to fix an unclear reference to comments from Thom Tillis)

--With assistance from Steven T. Dennis and Billy House.

To contact the reporter on this story:
Erik Wasson in Washington at ewasson@bloomberg.net

To contact the editors responsible for this story:
Laura Davison at ldavison4@bloomberg.net

Megan Scully

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