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Politics & Policy

About That Fourth Tax Bracket

Donald Trump is the world’s most insecure billionaire, which gives him an odd taste for a form of class warfare where the targets of opportunity are people richer than him — you know, real billionaires like Jeff Bezos and Michael Bloomberg. During the campaign, Trump went on and on about “hedge-fund guys” who don’t, in his estimation, pay enough taxes, and he has claimed that Amazon fails to pay taxes, too, claiming that the firm is “doing great damage to taxpaying retailers.”

As usual, Trump doesn’t quite know what he is talking about. The dispute over the carried-interest treatment of certain kinds of investment income is largely of interest to private-equity investors rather than hedge funds, most of which do not hold assets long enough to qualify for the lower long-term capital-gains tax rate. Trump’s claim about Amazon apparently refers to an old dispute about collecting state and local sales taxes on online sales, something Amazon has in fact been doing for years now. In fact, Amazon has supported a federal law that would require all online retailers to collect state and local sales taxes — successful market incumbents often are happy to see cumbrous new regulations raise the price of entry into their markets.

Trump doesn’t know much, but he knows resentment. From taxes to trade to national defense, he is obsessed by the fear that somebody somewhere is getting over on us. He doesn’t understand things like finance and technology companies, his own business background having largely been confined to such relatively old-fashioned concerns as casino/strip-joint complexes in New Jersey and renting his name to people who sell third-rate shirts at Macy’s. And he is convinced that people who make their living in business he doesn’t understand aren’t paying enough taxes.

Hence, his offer to congressional Democrats to include a fourth bracket in his tax-reform plan — a punitive tax bracket for the so-called rich, which in the minds (“minds”) of congressional Democrats means anybody in a household making more than $250,000 a year. Expect Nancy Pelosi and Chuck Schumer to propose a very high rate for that bracket. Republicans almost certainly won’t cooperate with that, but Trump will have given the Democrats another class-warfare issue to run on, not that he gives a damn about the electoral prospects of anybody not named Donald Trump, and congressional Republicans least of all.

I have a rate proposal of my own for that top bracket: zero.

I have for a long time been sympathetic to the idea of capping the total annual taxes paid by an individual, say at $1 million a year. I call it the Max Tax. There’s no good economic reason for it, I’ll be the first to admit. Barack Obama used to say that, at a certain point, you’ve made enough money. I think that, at a certain point, you’ve paid enough tax, at least for the year. The Left likes to talk about “fair share,” even though right now, as things stand, the top 20 percent of income earners pay basically all the federal income tax — their share of taxes is wildly disproportionate to their share of income. Call me old-fashioned, but I think a million bucks a year is more than one’s “fair share.” I like the idea of other tax caps, too: For example, I’d cap the lifetime property taxes on a residence at the price of the house itself. If you’ve paid off your house once, and then paid for it again through property taxes, it should be, at long last, your house. Yes, this would create some weird economic incentives, but I’m okay with some of that, and much of it could be mitigated through designing the cap rules intelligently.

If you pay a million bucks in taxes, you shouldn’t get a visit from a guy with his hand out asking for more. You should probably get a thank-you card. I don’t care if you made $1 billion this year — I don’t care if you made $1 billion this week — a million bucks is a lot of money.

At the other end of the spectrum, the bottom half of income earners pay essentially no federal income tax, though they pay other federal taxes, including the payroll tax. Trump’s tax plan would add to the burden at the top and take even more people off the tax rolls at the bottom. Ronald Reagan used to boast of all the low-income Americans his policies took off the tax rolls entirely. I’m not sure that was all to the good. We have a large, active federal government that redistributes a lot of money. Everybody ought to pay a little something in federal income tax if we are going to have a federal income tax. Surely, nobody’s “fair share” is really $0.00. Everybody likes to sit by the fire, nobody wants to chop the wood.

Of course, capping federal income taxes at $1 million a year would make the United States an attractive tax haven for millionaires and billionaires from around the world. (Oh, no.) That would probably have many interesting effects, including raising real-estate prices in New York City, which would not offend President Trump in the least.

But Trump, the personification of the ugly American id, would rather indulge his resentment. Congressional Republicans should kick that fourth bracket to the curb most pronto, and maybe give a little thought to the Max Tax.




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