The Wall Street Journal weighs in on the surprise surcharge that the Republicans presented in their tax plan — and subsequently defended when it was discovered. I have reposted it below in its entirety, because it is excellent:
You know Republicans are intellectually confused when they send out press releases defending a top marginal income-tax rate of nearly 50%. Yet that’s what they were up to this weekend as they tried to justify their bubble bracket tax rate of 45.6% after our criticism on Saturday.
We called it a stealth tax rate because it’s buried in the fine print of the Ways and Means proposal. It also isn’t part of the tax simplification story Republicans are selling by publicly claiming the House reform shrinks the individual code to four rates from seven. But caught out by our reporting, they are now denying that the fifth rate is stealthy while defending it as good policy.
The 45.6% is a bubble rate because it applies to tax-filing couples who make between $1.2 million and $1.6 million (above $1 million for single filers). The surcharge is intended to claw back any benefit these filers get from the new 12% income bracket that applies to income of less than $90,000 for couples ($45,000 for single filers).
Add that to the 3.8% ObamaCare surcharge that Republicans are keeping as part of tax reform, and these taxpayers would now have a top marginal rate of 49.4%. Add state and local taxes, which would no longer be deductible against federal taxes (a policy we support), and these mostly Republican voters would in many states pay a marginal rate (on the next dollar of income) close to 60% and an effective rate (total share of income) higher than they do now. Keep in mind this is Republican tax policy.
It’s no surprise, then, that Republicans are resorting to Democratic arguments that this is no big deal because these taxpayers can afford it. They’re also claiming this is kosher because the 1986 Reagan reform also had a bubble rate of 33% in addition to a top rate of 28%. But a bubble rate of 33% is a lot lower than 50%, which was the top rate before Reagan’s 1986 reform.
And as we wrote at the time (“Gephardt Soap Bubble,” Sept. 25, 1989), Reagan’s bubble rate was also a mistake. It greased the skids for raising the top marginal rate to 31% from 28% as part of George H.W. Bush’s tax increase in 1990. Democrats argued then that the wealthiest shouldn’t pay a lower marginal rate than the merely affluent, and the bipartisan deal was the 31% top rate for everyone.
If the Kevin Brady-Paul Ryan 45.6% bubble bracket becomes law, this will soon become the new top rate for everybody—perhaps when Nancy Pelosi is Speaker after 2018.
The other Republican defense is that this bubble surcharge raises some $50 billion over 10 years to pay for pro-growth tax cuts elsewhere. But these rate increases never raise what they claim because people change their behavior. The political truth is that the estimated surcharge revenue is really going to finance the huge increase in the family tax credit that costs $640 billion over 10 years. This family credit will also be refundable over time, which means it will be paid as a welfare check to people who don’t pay taxes.
In other words, Republicans are embracing higher tax rates a la Democrats to redistribute the money to non-taxpayers a la Democrats. Remind us again why college-educated suburbanites who are successful in business or the professions and are unenthralled with Donald Trump should vote Republican?
The best solution would be for Ways and Means to clean up this surcharge mess when it marks up the bill this week. Failing that, we need a cleanup in aisle two, which is the Senate Finance Committee.