Trump to GOP: Raise Taxes? That’s On You

Well, maybe not entirely on Capitol Hill Republicans. A couple of weeks ago, the GOP began discussing a hike in the top tax rate to balance out predicted revenue reductions by expanding the state and local tax deduction (SALT) from its current cap at $10,000. The plan would be to get the new reconciliation bill to a deficit-neutral outcome by massaging the revenue derived from the highest earners, while giving some relief to middle-class households caught in high-tax states like New York and California.

Donald Trump put the kibosh on the idea at the time, but Tax Hike Fever has continued to percolate on the Hill. This morning, Trump backed down a bit from his previous opposition, but warned Republicans that they would hand Democrats a midterm bat with which to beat them:

The problem with even a “TINY” tax increase for the RICH, which I and all others would graciously accept in order to help the lower and middle income workers, is that the Radical Left Democrat Lunatics would go around screaming,“Read my lips,” the fabled Quote by George Bush the Elder that is said to have cost him the Election. NO, Ross Perot cost him the Election! In any event, Republicans should probably not do it, but I’m OK if they do!!!

That was one of the issues that tripped up George H.W. Bush, but Perot was a much bigger factor — and Perot wasn’t really a tax hawk. Perot was a deficit hawk, and tax cuts weren’t a big part of his campaign. The “read my lips” mistake went to Bush’s credibility and honesty, which Perot attacked more than Bill Clinton did. Clinton benefited most from it and wisely refrained from interfering, and also got a boost for being a younger man with more energy with an appeal to the future rather than the past. 

Nevertheless, Trump’s right about how Democrats and the media turned “Read my lips” into an attack line. In fact, the media did that so successfully that we still remember that line to this day as a sardonic and dishonest attack line, perhaps even from people who weren’t around at the time. There is also little doubt that the GOP has internalized the lesson about reversals on tax hikes to the point where it has become almost engraved on stone tablets and stored in the Republican Ark, guarded by Top Men. Top. Men.

But is that the same situation as now? Bush hiked taxes in a misguided attempt to cover deficits, but this is more of a massage to clear the reconciliation requirement of deficit neutrality. And according to the Wall Street Journal, Trump himself has embraced the idea to some extent:

The president, who rejected a “millionaire tax” April 23, is now considering backing a tax structure that would return the top individual income-tax rate to 39.6% from 37% for people making over $2.5 million, according to people familiar with White House discussions.

The move could create breathing room as Republicans struggle to squeeze Trump’s tax cuts into a fiscal bill they are trying to unveil in the next few days and push through the House this month. The higher the top tax rate goes, the easier it could be for Republicans to avoid deep Medicaid cuts and reduce other taxes. It could also help counter Democrats’ charges that the GOP wants to cut the social safety net to pay for tax reductions for the rich.

But many GOP lawmakers oppose a higher top tax rate, and Trump would need almost every one of them to endorse it in the narrowly divided House and Senate. The top tax rate is the untouchable hot stove in the Republican Party, which has partly defined itself in opposition to any rate increases for more than three decades. 

Thirty-three years, to be exact. The arcane nature of this debate has now fallen on whether Republicans should cut taxes on the same people who would become subject to the tax hike, and by how much. Thanks to blue-state House Republicans, the SALT cap will go up in this package, which means taxpayers in other states will essentially have to subsidize the state and local tax structures of blue states. The only question is by how much, and it turns out that the blue-state GOP reps want it to be yuuuge:

Republican leaders are already having trouble corralling all the votes they need. Four New York Republicans—Reps. Elise Stefanik, Mike Lawler, Nick LaLota and Andrew Garbarino—rejected what they described as a proposal from Speaker Mike Johnson (R., La.) and the House Ways and Means Committee to raise the cap on the state and local tax deduction to $30,000 from $10,000. They said the offer was insultingly low and risked derailing Trump’s tax-and-spending bill.

How in the world is a $30,000 deduction low, let alone insultingly so? Most people fit within the existing $10,000 cap. Those living in states and/or localities with significantly higher tax exposure should either (a) press for saner tax policies within those jurisdictions, or (b) move. If they earn enough money to exceed a $30,000 SALT cap, they have the resources to do both, but especially (b). The four Republicans want a $100,000 SALT cap, which sounds very close to a “no cap at all” situation. 

It’s so greedy, in fact, that House Republicans practically have to raise taxes on the wealthy just to remove some of the stench from the proposal. MAGA didn’t sign up to get soaked for the One Percent; MAGA is at heart a populist movement, unlike the Tea Party, which was a true tax-and-deficit revolt movement. However, cutting against this is Trump’s oft-repeated pledge to make his 2017 tax reforms permanent, which includes the $10,000 SALT cap and the current marginal tax rates. 

In other words, this is a mess driven mainly by the demand for a practical end to the SALT cap. And if the solution is to raise marginal tax rates, that won’t just be on Republicans on one end of Pennsylania Avenue.