Threading The Needle

President Trump’s “big, beautiful” reconciliation bill has stalled on Capitol Hill because of multiple conflicting interests. 

The reconciliation process allows some legislation to avoid a Senate filibuster, meaning Republicans can pass it with just 51 votes. Both parties have used it to advance ambitious legislation, especially when they can’t count on the opposition party for support. And President Trump’s “big, beautiful bill” is very ambitious.

It aims to renew the 2017 Trump tax cuts (which expire at the end of this year), eliminate taxes on tips, overtime, and Social Security payments, possibly expand the per child tax credit, cut discretionary spending that ballooned under Joe Biden, and enact a host of other policy initiatives. 

However, it all has to be done in relatively strict parameters, and the math is a little tricky, to say the least.

There have been multiple, at times conflicting, reports that the White House is open to allowing the highest tax rate to go up from 37% to 39.6% in order to provide additional revenue for everything Republicans want in the reconciliation bill. The higher rate would apply to individuals with $2.5 million in income and to couples earning $5 million.

There is an important carve-out for small businesses that report income on personal tax returns.

I never like tax increases. But the idea is being discussed in order to pass a bill that prevents taxes from going up massively across the board if the 2017 tax cuts are not renewed. 

There’s also some logic here. 

The 2017 tax reform bill capped the state and local tax deduction in exchange for lowering the overall tax rate. It appears that a group of six or seven House Republicans from California and the Northeast feel like they are dead meat if they don’t get that cap raised so their constituents can deduct more of their state and local taxes. 

If Republicans have to increase this deduction to secure their support, then it makes sense to let the highest rate go up. 

One final point: From a purely political perspective, this is a no-brainer. Raising taxes on the wealthiest polls around 60% or more.