Today, I want to give a compliment for President Trump.
While I generally appreciate consistency, I can also respect the ability to adjust when it is necessary. We saw this in a pretty shocking fashion in 2017 when Donald Trump struck a deal with Chuck Schumer and Nancy Pelosi related to DACA recipients. We are now reportedly seeing him change his tune on income taxes for high income earners as a way to protect Medicaid. The reporting is somewhat ambiguous, but it seems the proposal is approximately to raise the top marginal income tax rate from 37% to 39.6% for people making over $2.5 million.
So what do we mean by top marginal tax rate? The marginal tax rate is the percent of your income you will pay in taxes above the threshold. This means, with a marginal tax rate starting at $2.5 million if your income grows from $100,000 to $2.6 million, the tax is only assessed on the amount over $2.5 million. Adding a top marginal tax rate of 39.6% tax on top of current tax rates, the total federal income taxes paid for someone making $2.5 million would be $882,020 and someone making $2.6 million would be $922,620, changing their total tax rate from 35.3% to 35.4%.*
For a long time, I have despised the lack of nuance in tax policy discussion. It makes sense to me to decrease income taxes on lower income earners and increase taxes on higher income earners. The current income tax for top earners is at a record low 1931. We shouldn’t simply focus on the divide of increasing versus decreasing taxes when we can do both at the same time and reduce the deficit. For reference, the top marginal tax rate ever was 94% in 1944-1945
Add onto the relatively low top tax rates, we are experiencing extreme differences in income – the GINI coefficient shows income inequality in the United States increasing substantially from the 1980s to today – with much of that happening from 1980 to 1992 before stabilizing at a much higher level.
Please do not consider this support for the bill in general, only for the provision of increasing taxes on higher incomes while lowering them for lower incomes.
* Note, for simplicity, this ignores tax credits and deductions.
Sources:
Schumer, Pelosi say they’ve reached a deal with Trump to protect ‘dreamers’ | PBS News
https://thehill.com/homenews/house/5290814-trump-tax-hike-wealthy-gop-bill/
Trump revives millionaire tax talks as Democrats blast GOP on Medicaid
Marginal Tax Rate: What It Is and How To Determine It, With Examples
IRS releases tax inflation adjustments for tax year 2025 | Internal Revenue Service
GINI Index for the United States (SIPOVGINIUSA) | FRED | St. Louis Fed
Historical Highest Marginal Income Tax Rates | Tax Policy Center
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