In a significant development in the realm of U.S. fiscal policy, President Donald Trump recently engaged in a private phone call with Speaker Mike Johnson (R-La.) on Wednesday. During this conversation, Trump urged Johnson to incorporate two additional proposals into the expansive legislative package that aligns with his agenda. These proposals include raising the tax rate on the highest earners and closing the notorious carried interest loophole. This information comes from a Republican leadership source, along with two other GOP insiders familiar with the discussion.
The last-minute requests from Trump add complexity to an already intricate legislative process. Republican lawmakers are under pressure to identify sufficient savings for this comprehensive bill, which aims to extend the president's 2017 tax cuts, enhance funding for immigration enforcement and defense, as well as raise the debt ceiling. The White House has been contemplating a hike in the top tax rate for affluent Americans for several months, and it appears close to finalizing a topline figure for the bill, according to one of the GOP sources.
According to another GOP source who spoke to NBC News, Trump is considering a plan that would revert the tax rate for individuals earning $2.5 million or more from the current 37% back to the pre-2017 rate of 39.6%. This adjustment is viewed as a strategy to fund tax cuts for the middle and working classes while also protecting Medicaid. Punchbowl News was the first outlet to report on the details of the Trump-Johnson call.
Historically, Republicans have been hesitant to endorse tax increases on the wealthy, a stance that has been a cornerstone of the party's ideology. Although there have been discussions about allowing tax rates for top earners to increase when key elements of the 2017 tax law expire at the end of this year, GOP leaders have remained resistant to implementing a tax hike for the affluent. Just last month, Trump dismissed the idea of raising taxes on millionaires, emphasizing that it could lead to financial disruptions. “You’ll lose a lot of money if you do that,” Trump asserted at the time. “And other countries that have done it have lost a lot of people. They lose their wealthy people. That would be bad, because the wealthy people pay the tax.”
With Trump now pushing Speaker Johnson to reconsider his stance, House Republicans are grappling with the challenging math involved in their substantial bill. A senior House Republican involved in the negotiations confirmed to NBC News that discussions have intensified within the House GOP conference regarding the possibility of allowing the top tax rate to increase, as well as closing the carried interest loophole.
When asked about the seriousness of these new proposals, the House Republican responded, “At this point we have to find the savings, so I think everything is being taken under consideration.” The House Ways and Means Committee, responsible for tax legislation, is set to mark up its portion of the reconciliation bill next week. However, the committee is still navigating several complex issues, including how to adjust the cap on the state and local tax deduction (SALT).
House GOP leaders are aiming for a formidable timeline, striving to pass the final package on the floor before Memorial Day. This ambitious goal underscores the urgency and complexity of the ongoing negotiations within the Republican party as they work to balance various fiscal priorities.
