Fiscal conservatives, small businesses warn against raising top tax rate

Conservative activists and small businesses pushed back on the White House and Congressional Republicans considering raising taxes on the country’s highest earners.

Lawmakers are discussing whether, as part of a massive package Republicans want to pass as part of President Trump’s economic agenda, to allow the top marginal tax rates on the country’s wealthiest to rise when major parts of the 2017 tax law elapse at the end of this year.

Fiscal tax hawks such as Grover Norquist, president of Americans for Tax Reform, were taken aback when they first learned that anonymous White House staffers were urging Mr. Trump to agree to letting the top 37% tax rate rise to 39.6%.

“President Trump campaigned on the commitment that he wanted to extend his tax cuts and make them permanent for all Americans. Kamala Harris was willing to extend much of them, but not for the highest rate tax,” Mr. Norquist told The Washington Times.

“Now some people in the Trump White House are taking Kamala Harris’s position. Trump won the election, and they want to undermine Trump by taking Kamala Harris’s position that we should raise taxes on higher-income people. I understand why Democrats do that. That’s not what Trump ran on,” he said.

Mr. Norquist said that the president made it clear that he wanted to extend the tax cuts for all the income brackets and that the issue polls well.

Moreover, the expiring tax rates in this income bracket are not just for wealthy individuals but also small businesses that will get hit by the tax hike.

The Washington Times reached out to the White House for comment.

White House press secretary Karoline Leavitt was asked during the daily briefing Tuesday where the president stood on the issue and she replied, “I’ve seen this idea proposed, I’ve heard this idea discussed, but I don’t believe the president has made a determination on whether he supports it or not.”

Republicans on Capitol Hill heard from 90 trade associations late last week in a letter stating their opposition to the idea of a top rate of nearly 40%.

The trade associations highlighted the federal tax code’s section 199A, which allows owners of pass-through businesses to deduct up to 20% of their qualified business income from their taxable income in calculating their individual income tax liability.

It also noted Section 1231 of the Code, which deals with the tax treatment of gains and losses from the sale of certain business properties.

“The so-called ’millionaire tax’ in question – which actually kicks in at income around $620,000 – would saddle them with a tax hike that offsets about half the tax benefit of extending the Section 199A deduction,” they wrote in a letter to Rep. Jason Smith of Missouri, chairman of the Ways and Means Committee, and Sen. Mike Crapo of Idaho, chairman of the Finance Committee.

“Coupled with the Net Investment Income Tax and state and local taxes, the proposal would impose marginal rates exceeding 40 percent on businesses that receive the full Section 199A deduction, or twice the rate paid by C corporations,” they told the two Republican lawmakers, whose panels take the lead on taxation issues.

“Certain industries are precluded from Section 199A, however, as is foreign-sourced income and Section 1231 gains. So-called ’guardrails’ tied to wages, capital investment, and taxable income reduce the value of the deduction for many more,” the letter states.

“Businesses ineligible for the full 199A deduction would face combined marginal rates above 50 percent. Rates that high are simply not sustainable,” the business groups explain. “We understand the fiscal pressures involved in crafting a legislative package of reforms and extensions, but increasing the top individual rates would target the very businesses Congress seeks to help.”