GOP Tax Plan to Allow for Top Individual Rate Above 35% -- Update

The Republican tax plan being released Wednesday will open the door to a top individual tax rate that is higher than the 35% that has been in previous plans, according to two people familiar with the discussions.

Republicans have been discussing collapsing the current seven individual tax brackets into three, with a top rate of 35%. The idea now under consideration would allow for a fourth rate at the very top, likely somewhere between the 35% in proposals and the existing top rate of 39.6%.

The document won't offer details about the level of that new top rate or the income level at which it would apply, the two people said. Instead, it will give Congress discretion to agree on a measure to meet whatever target lawmakers set for the distribution of the tax burden among different income groups.

An additional top rate on the highest earners would make it easier for President Donald Trump to argue -- as he has sometimes promised -- that the wealthiest households aren't getting a significant tax cut. It also could spark an intra-Republican debate over how to tax the highest earners. That could complicate already messy congressional deliberations over the details of tax policy this fall.

Republican lawmakers and the White House are expected to release a blueprint for their plans on Wednesday and Mr. Trump will speak in Indiana on the issue. House Republicans will hold their own half-day retreat on the subject in Washington on Wednesday.

The framework is the product of the so-called Big Six of U.S. policy makers on taxes: House Ways and Means Chairman Kevin Brady (R., Texas), Senate Finance Chairman Orrin Hatch (R., Utah), Treasury Secretary Steven Mnuchin, White House economic policy chief Gary Cohn, Senate Majority Leader Mitch McConnell (R., Ky.) and House Speaker Paul Ryan (R., Wis.).

It will be difficult to tell who gets the tax cuts under the plan until lawmakers release a complete tax bill and independent analysts examine how the distribution of the tax burden differs from today's tax system.

That full bill isn't likely to appear until after Congress adopts a budget resolution. The budget allows for the Senate to pass the tax bill on a simple majority vote without Democratic support.

In a meeting at the White House on Tuesday with Republican and Democratic members of the House Ways and Means Committee, Mr. Trump said his administration's tax proposal to be unveiled on Wednesday would be "a very, very powerful document."

He said the proposal would call for simplifying the tax code, calling the current version "too complicated."

Mr. Trump also said the proposal would cut taxes for the middle class and for corporations.

"If we do this, we will create millions of new jobs for our people," he said. "We will become a competitive nation again."

Taxes on high-income households are one of the core issues that divide the parties and most Democrats have insisted that the wealthiest Americans not got a tax cut. If Mr. Trump wants Democratic votes, that could require significant changes in the GOP plan because it has many pieces that benefit high-income households, including a lower corporate tax rate, a lower tax rate on businesses that pay taxes on their owners' individual returns and the repeal of the estate and alternative minimum taxes.

Rep. Richard Neal of Massachusetts, the top Democrat on the Ways and Means Committee said Mr. Trump told the lawmakers Tuesday that the rich wouldn't benefit and that Mr. Mnuchin said they were willing to negotiate on the top rate.

The White House and the Treasury Department didn't immediately respond to requests for comment.

Mr. Neal said he favored keeping the top rate at 39.6% and wanted to see distribution tables, or estimates of how each income group would fare in the plan.

"Concentrated wealth in America is an issue that we've got to be concerned with," he said.

Republicans do want to eliminate some deductions that largely benefit high-income households, namely the break for state and local taxes.

Rep. Pat Meehan (R., Pa.), who was at the White House meeting, said the gathering was important and that there was common ground on looking for a better tax system.

But, he said, "We have to be realistic about what kind of bipartisanship we can ultimately expect."

Write to Richard Rubin at richard.rubin@wsj.com and Michael C. Bender at Mike.Bender@wsj.com

(END) Dow Jones Newswires

September 26, 2017 15:17 ET (19:17 GMT)