As Republicans prepare to cut trillions of dollars in taxes, they are grasping for ways to keep down costs. There are the typical conservative ideas for doing so, like cuts to health care programs, and the inventive ones, like changing how the budget is measured in the first place.
And then there is an unorthodox option Republicans on Capitol Hill and in the Trump administration are quietly considering: a tax increase on the rich.
The idea is one of many tax changes Republicans are floating. Lawmakers and lobbyists expect the party’s anti-tax antibodies to kick in and eventually block it. But even the possibility of raising taxes on high-income Americans has stirred a debate among Republicans about the party’s relationship with the richest Americans as their base of support increasingly comes from the working class.
“You’ve got these two conflicting streams of thought within the Republican Party,” said Dave Kautter, a Treasury official under the first Trump administration. “There’s ‘Let’s raise the rate so we can provide relief for lower- and middle-income people who are now part of our coalition,’ versus the traditional few that say, ‘The top rate should be as low as we can get it.’”
At issue is the marginal tax rate for Americans in the highest income bracket, a group that is largely made up of the top 1 percent of earners. Under the income tax system, Americans pay a higher rate for every dollar they make above increasing thresholds.
In their last major tax cut, in 2017, Republicans lowered marginal tax rates across income levels, including the top rate, which dropped to 37 percent from 39.6 percent. Like many of the other tax cuts Republicans passed that year, the 37 percent rate is set to expire at the end of the year if Congress does not pass another law renewing it.
For Republicans struggling with the roughly $4 trillion cost of continuing the 2017 cuts, letting the top rate snap back to 39.6 percent would be an easy way to reduce the cost of the bill. Not only would such a move save roughly $366 billion, according to the Tax Policy Center, a think tank in Washington, it could also help inoculate Republicans against attacks from Democrats accusing them of seeking to cut taxes for the rich at the expense of programs that help the poor.
So could creating another income bracket. Right now, the 37 percent rate kicks in on earnings above $609,351 for a single American. Another option would create a new income threshold, say $1 million per year, and tax earnings above that level at a higher rate.
Republicans on Capitol Hill and in the administration described the ideas as part of the early brainstorming process for their tax bill. Democrats have tried and failed to make similar moves, and without a clear champion the ideas could fizzle out. Some Republicans quickly promised to try and kill any tax increases, and leadership was circumspect.
“Generally, we’re trying to reduce taxes around here, so that’s a general principle; we’ll have to see,” House Speaker Mike Johnson, Republican of Louisiana, said when asked about the possibility of raising taxes on rich Americans.
At the same time, Republicans face deep internal pressure to not blow out the deficit with the bill they are planning, pushing the party to consider ideas it would usually avoid.
“We’ve got this incredible national debt, and so at some point you’ve got to address the elephant in the room,” Senator Bill Cassidy, Republican of Louisiana, said on raising the top rate. “Can’t tell you if it’s going to happen or not.”
After months of scrimmaging, the House and Senate in recent weeks approved a resolution outlining the contours of the legislation. Agreeing to the budget outline was the first step along a fast-track procedure, called reconciliation, for passing a bill without Democratic support in the Senate. Some Republicans only reluctantly agreed to vote for the budget blueprint and demanded that the final bill show more fiscal discipline.
Even if Republicans raised taxes on rich Americans, much of the legislation would still be dedicated to cutting taxes. Beyond continuing the 2017 tax cuts, Republicans are trying to figure out how to turn into law President Trump’s promises to not tax tips, overtime pay or Social Security benefits. And lawmakers have additional demands, some of which would provide tax breaks that help the rich, including lifting the $10,000 cap on the state and local tax deduction and eliminating the estate tax.
Those proposals are expensive, so lawmakers are studying ways to raise other taxes and craft a bill that falls within the budget they agreed to. (House Republicans have given themselves $4.5 trillion budget for tax cuts, while Senate Republicans have an allowance of roughly $5.3 trillion.)
But other ideas for raising revenue also have problems. Some Republicans whose states have benefited from clean-energy incentives have said they would oppose the total repeal of the tax credits, for example. There’s also concern about limiting how much companies can deduct in state and local taxes, another idea for raising taxes that has gained some ground. Mr. Trump’s pitch to eliminate carried interest, a loophole that hedge fund and private equity managers have enjoyed, would have to overcome fierce industry resistance, which has killed other recent attempts to narrow the tax break.
Even Republicans who say they could support raising the top individual income rate worry about how doing so could affect business owners. Many businesses pass their profits directly onto owners, who then owe individual income taxes on the earnings. In 2017, Republicans created a deduction for the owners of these businesses, often called pass-throughs, and industry groups are now furiously lobbying to protect the lower rates.
“I think as long as we can tailor it to where small businesses are not swept into it, I’m open to it,” Senator Thom Tillis, a Republican from North Carolina, said of raising the top individual rate.
Other Republicans believe raising the top rate could help the party reorient its economic agenda. Senator Josh Hawley, Republican of Missouri, who has opposed cuts to the safety-net in the bill, said he recently spoke with Mr. Trump about the need to create tax breaks for low- and working-class Americans who did not owe much in income tax. Mr. Hawley is open to raising taxes on the rich to pay for a tax break for lower-income Americans.
“I think we need to cut taxes for working folks, so if the president wants to offset that, then I’m definitely open to it,” Mr. Hawley said. “I would go so far as to argue that’s the core of his base. So we need to do something for those folks.”
Andrew Duehren covers tax policy for The Times from Washington.
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