White House chief strategist Steve Bannon's plan to raise the top income-tax rate for America's highest earners could find some support among congressional Republicans as part of a populist message to sell a broader tax overhaul, according to one conservative lawmaker who has heard the proposal.
Bannon supports paying for middle-class tax cuts with a new top rate of 44 percent for those who make more than $5 million a year, according to a person familiar with his thinking. The lawmaker, who asked not to be named because discussions are private, said the rate pitched was 42 percent, which would be acceptable to some conservatives, as long as it's coupled with a low corporate rate and other changes like repealing the alternative minimum tax. The current top individual rate is 39.6 percent.
The proposal could give President Donald Trump's administration momentum to drum up popular support to rewrite the tax code, while wealthy individuals would get other tax benefits, such as the repeal of the estate tax, to partially offset the higher rate.
Earlier reports of Bannon's proposal to create the highest top individual income tax rate in 30 years were initially considered unrealistic since Congress is controlled by the historically anti-tax GOP. Automatic opposition isn't a given among some GOP members, said the lawmaker who'd heard the proposal -- especially if they're made to understand how it could help publicly sell a plan that would include other changes in the tax code, the person said.
It wasn't immediately clear how much revenue the new marginal rate could generate. Data from the
Internal Revenue Service show that in 2014, only about 0.029 percent of individual income tax returns listed annual income of $5 million or more.
In order to get support among conservatives, the corporate tax rate would have to be low enough to boost economic growth and prevent base erosion. Republican leaders in Congress have proposed a 20 percent rate, and even recently suggested a 22 percent rate before going back to their original proposal, according to the lawmaker. The current top corporate tax rate is 35 percent.
A one-page tax plan presented by White House officials in April suggested a 15 percent rate for corporations and pass-through entities, which would be a better target for policymakers to get support for the higher rate on top earners, the lawmaker said.
There would have to be measures written into the code to prevent high earners from categorizing themselves as pass-through companies merely to get the lower business rate on their income, according to the lawmaker.
It's unclear whether Trump would support Bannon's proposal. Trump has said he's focused on tax changes that would help the middle class, but an analysis this month of the previous White House tax outline shows it would mostly benefit top earners.
