• The GOP's hidden 46% tax bracket - If you're rich enough, some of your

    From Ubiquitous@21:1/5 to All on Fri Nov 3 06:32:25 2017
    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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