
The Trump administration could raise the tax rate for the wealthiest Americans in an effort to eliminate taxes on tips.
According to a report in Axios, administration officials believe it would help them fulfill a campaign promise while dampening criticism from Democrats as they try to extend President Trump’s 2017 Tax Cuts and Jobs Act.
Technically, the administration wouldn’t need to raise the rate, they would just need to let that portion of the tax law expire, which it does at the end of this year.
Republicans are currently working on a budget reconciliation package to extend the tax law, but it’s projected to decrease the federal government’s revenue and in turn increase debt, so letting taxes increase on the wealthiest Americans could offset other provisions like eliminating taxes on tips.
The current highest tax rate is 37% for individuals making $609,000 a year or more or couples who make more than $731,000. If the Trump tax cuts are not extended the top rate would jump to 39.6% and the bracket income level would drop to $418,000 for individuals and $470,000 for couples.
Democrats say Republicans are only extending the tax cuts to help their wealthiest donors. If they let the highest rate increase, they could prevent some of those criticisms.
As one administration official said – “If we renew tax cuts for the rich paid for by throwing people off Medicaid, we’re gonna get f–k***ing slaughtered.”
Eliminating taxes on tips isn’t the only tax code change being considered. Republicans also want to eliminate taxes on Social Security benefits and military retirement benefits.
Senator Pete Ricketts, R-Neb., just introduced a bill that would do both. He pointed out that from 1935 until 1983, Social Security benefits were not taxed; by 1993, 85% of the payments were taxable.
“These aren’t government handouts. They’re benefits people have earned,” Ricketts stated. “Seniors have paid into Social Security for decades. Veterans have given years of service to protect our freedoms. We should not be double-taxing them.”
Congressional Republicans hope to have the budget reconciliation package finished by April 7. Currently they do not agree on how to get it done and what to include. Based on the significant changes they want to make, that timeline will be extraordinarily difficult.