XPost: alt.tv.pol-incorrect, alt.politics.usa, alt.fan.rush-limbaugh
XPost: alt.politics.republicans, us.taxes

House Republicans claim the tax plan they introduced Thursday keeps
the top individual rate unchanged at 39.6 percent—the level at which
it’s been capped for much of the past quarter-century. But a
little-noticed provision effectively creates a new band in which
income is taxed at over 45 percent.

Thanks to a quirky proposed surcharge, Americans who earn more than
$1 million in taxable income would trigger an extra 6 percent tax on
the next $200,000 they earn—a complicated change that effectively
creates a new, unannounced tax bracket of 45.6 percent.

It hasn’t been advertised by Republicans, who have described their
plan as maintaining the current top tax rate of 39.6 percent. And it
goes against decades of GOP orthodoxy that raising taxes on the rich discourages work and reduces economic growth. Reached by phone,
Steve Moore, a tax expert at The Heritage Foundation, said the
surcharge was news to him. “I was just in a briefing with the White
House on this,” he said. “They didn’t mention that. It seems kind of
bizarre to me.”

The new rate stems from a provision in the bill intended to help the
government recover, from the very wealthy, some of the benefits that lower-income taxpayers enjoy. Under the House GOP plan, all
individuals—no matter whether they earn $35,000, $150,000 or $10
million—would pay the lowest rate, 12 percent, on their first
$45,000 in taxable income. That’s a normal feature of current
American tax law. But in the new plan, House Republicans want to
claw back some of that benefit for individuals who earn more than $1
million, or couples earning more than $1.2 million.

Here’s how it would work: After the first $1 million in taxable
income, the government would impose a 6 percent surcharge on every
dollar earned, until it made up for the tax benefits that the rich
receive from the low tax rate on that first $45,000. That surcharge
remains until the government has clawed back the full $12,420, which
would occur at about $1.2 million in taxable income. At that point,
the surcharge disappears and the top tax rate drops back to 39.6
percent. This type of tax is sometimes called a “bubble tax,”
because the marginal tax rate effectively bubbles up for a brief
period before falling back to a lower level.

According to POLITICO’s calculation, the surcharge could raise more
than $50 billion over a decade—money that will help the GOP meet the
$1.5 trillion in deficit reduction and required to balance out tax
cuts elsewhere. Balancing out those costs means that the bill can
pass through budget reconciliation, and Senate Democrats can’t
filibuster the bill.

Whom would it affect? According to the Internal Revenue Service,
438,000 tax filers had more than $1 million in taxable income in
2015, most of whom also make more than $1.2 million—meaning they’d
pay the full additional $12,420 in bubble tax. Altogether, that
surcharge could have raised roughly $5 billion in 2015, the latest
year in which numbers are available, meaning it could potentially
bring in around $50 billion over the next decade. That’s not huge
money in a plan that cuts taxes $1.5 trillion—but every bit counts.

A spokesperson for the House Ways and Means Committee did not
dispute the math but characterized the bubble as "the phase-out of a
tax benefit" for high earners, rather than a surcharge. "The Tax
Cuts and Jobs Act provides tax relief at every income level," said
the spokesperson.

The idea of a bubble tax is not exactly new. In fact, the corporate
tax code currently contains a bubble tax, which the GOP plan would
eliminate. But the hidden nature of bubble taxes concerns experts
who believe that the tax code should be easy to understand. “It
certainly doesn’t promote tax transparency in terms of letting
people readily understand the true rate structure,” said Alan Viard,
a tax expert at the American Enterprise Institute. “I don’t think
many people in the tax policy community are enthused about this kind
of provision.”

The bubble tax also represents something of a break from nearly all
Republican tax plans for the past few decades. Supply-side
conservatives have long complained that the current tax rates on top
earners are too high, discouraging work and reducing economic
growth. House Republicans proposed lowering the top rate to 33
percent in the tax blueprint that they released last year. Over the
past few weeks, faced with pressure from President Donald Trump to
counter critics who said the plan is a giveaway to the rich and
needing additional revenue, GOP leaders acceded to leaving the top
rate unchanged. For a party that has focused intently on lowering
marginal tax rates, it was a big concession.

Through the bubble tax, though, House Republicans quietly went a
step further. The change could anger conservatives who dislike
higher tax rates and weren’t expecting Republicans to include a
bubble tax in their plan. After POLITICO explained the idea further
to Moore, he said it was a “stupid policy” that goes against supply
side theory. “All the benefits from rate reductions are from cutting
the highest rate not the lowest rates,” he added.

For Democrats, the extra $50 billion from the rich is almost certain
not to change their criticisms that the plan contains huge giveaways
to the rich in the form of corporate tax cuts and the new 25 percent
rate for so-called “pass through” businesses, which include
everything from small businesses to hedge funds.

The bubble tax, in other words, is a way for the GOP to quietly
raise much-needed revenue without changing the broader features of
the bill. But it does mean that the top marginal tax rate would rise
above 40 percent for the first time since 1986—the last year that
Congress overhauled the tax code.

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Dems & the media want Trump to be more like Obama, but then he'd
have to audit liberals & wire tap reporters' phones.

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