Congressional Republicans are mulling proposals to raise taxes on corporations and wealthy earners. But doing so would end 50 years of principled Republican opposition to tax hikes driven by conservatives and reflect a populist GOP coalition that President Donald Trump has invigorated with working-class voters who formerly affiliated with the Democratic Party.
The ideological heresy is not going over well with conservative activist groups that focus on fiscal issues. Some have been quick to warn Republicans of consequences for straying from party orthodoxy and supporting what are so far loose proposals for tax hikes in the budget reconciliation package under development in the House of Representatives. The ideas in play call for raising income tax rates on the so-called rich and trimming or stripping an existing corporate deduction for state and local taxes, or SALT.
“No Republican campaigned on a tax rate increase. In fact they campaigned on extending [and] making permanent the Trump tax cuts. That precludes a tax rate increase. Trump himself aggressively and consistently vowed to make the Trump tax cuts permanent,” said John Kartch, a spokesman for Americans for Tax Reform, which for years has pressured GOP candidates to sign its “Taxpayer Protection Pledge.”
“Conservatives hate the idea of a rate hike. Talk radio hates it. Conservative members of Congress hate it,” Kartch added. Meanwhile, Club for Growth, a conservative group with a history of targeting incumbents in Republican primaries, has also made its dissatisfaction known.
“Keeping the top rate at 37% is a red-line and Club for Growth will issue a key-vote alert to Members of Congress opposed to any legislation that attempts to increase the top individual marginal tax rate by any amount,” the group’s president, David McIntosh, said earlier this month in a published statement.
But so far, congressional Republicans haven’t been persuaded to rule out tax hikes. More than a half-dozen veteran Republican operatives on Capitol Hill and among downtown Washington, D.C., lobbyists tell The Dispatch the proposals are “very real” and, with Trump’s sign-off, could land in the reconciliation legislation that passes the House, where the GOP controls a narrow majority. Bloomberg reports that Republicans are considering a tax increase, from 37 percent to 40 percent, on annual income exceeding $1 million.
“Today’s Republican Party is less concerned with getting cross-ways with today’s Wall Street Journal editorial board than we used to be,” Republican strategist Rob Simms said.
“I wish they’d hammer billionaires, specifically,” a Republican lobbyist added, who, like some GOP operatives The Dispatch interviewed for this story, requested anonymity to speak candidly.
The revenue raised from tax hikes would go toward funding Trump’s reconciliation priorities.
Among them are reducing taxes on income from tips, overtime, and Social Security, plus adding a new deduction for financing interest on American-manufactured automobiles—among other breaks that would largely benefit middle-class and blue-collar voters. It would also pay for upping the popular SALT deduction limit for individuals, a key demand of Republicans from high-tax blue states like New Jersey and New York. Trump previously championed a SALT deduction cap via the $2 trillion Tax Cuts and Jobs Act he signed into law in 2017.
Some Republican leaders, including House Speaker Mike Johnson and House Majority Leader Steve Scalise, both of Louisiana, oppose raising taxes in the reconciliation package, legislation being crafted strictly by Republicans and expected to receive zero Democratic support. Indeed, Republicans are using the reconciliation provision of the Congressional Budget Act of 1974 because under that law, bills primarily addressing taxes and spending are not subject to a Senate filibuster. That means Republicans, who control 53 Senate seats, need only muster a simple majority for passage, rather than the customary 60 votes.
But sources tell The Dispatch that House Budget Chairman Jodey Arrington of Texas and House Ways and Means Chairman Jason Smith of Missouri are open to tax hikes on wealthy earners and corporations. Spokesmen for Arrington and Smith did not respond to emails requesting comment.
Meanwhile, the proposals, at least in concept, enjoy a base of support of roughly 50 rank-and-file House Republicans, according to Steve Bannon, the pro-Trump, populist media figure who is urging the GOP to increase taxes on high earners. As far back as early December, while the second Trump administration was still taking shape, Bannon told The Dispatch a burgeoning $36.2 trillion federal debt makes “tax increases for the wealthy” imperative, predicting there could be “bloody brawls” in the House over this issue.
Bannon’s estimate of 50 still leaves plenty of House Republicans, to say nothing of Republicans in the Senate, who either oppose tax increases or might be flexible but fear a political backlash. Voting for any sort of tax hike, even if just for corporations and the so-called “rich,” would allow future GOP primary challengers to credibly accuse incumbents of supporting increases as a matter of policy.
But Trump—who is steering the Republican legislative agenda—has never been a dogmatic conservative in the mold of President Ronald Reagan. So arm-twisting from him could generate enough votes to get the proposals under consideration approved—at least in the House.
“It’s the kind of thing people only walk the plank on if Trump goes to the mat for it,” a second Republican lobbyist said. Semafor previously reported that the president has told Republican senators he is open to raising taxes on wealthy individuals. The White House did not respond to an email requesting comment.
Since Reagan rode aggressive tax cuts to two election victories, reducing taxes has been GOP gospel. Every Republican presidential nominee since, including Trump, has campaigned on tax cuts.
In 1988, future President George H.W. Bush famously said in his nomination acceptance speech: “Read my lips, no new taxes.” But he lost reelection four years later in part because of Republican voters’ disillusionment over his subsequent decision to raise taxes as part of a compromise spending bill with congressional Democrats, who at the time controlled majorities in the House and Senate. The lesson Republicans took away from the 41st president’s experience was to reject raising taxes under any circumstances.
Fast forward to today, and Republicans are considering proactively raising taxes on wealthy earners and corporations, despite controlling both chambers of Congress and writing a bill designed to pass without a single Democratic floor vote.
“You’re going to do a Republican-only reconciliation bill and raise taxes? Why do reconciliation?” a longtime GOP government relations executive asked, sarcastically. “You might as well do a Democratic bill.”
But that such a move enjoys any Republican support is yet another sign of how the Republican coalition has changed since Trump first won the presidency in 2016. Working class voters—many of them former Democratic voters who left that party because of disagreements on cultural issues—have flocked to the GOP. So, theoretically, Republicans may not face a revolt from their grassroots base if they vote for a tax hike on the wealthy.
Meanwhile, Republicans in the House and Senate are struggling to balance the competing priorities of providing tax relief that doesn’t explode an already worrisome deficit. The various spending cuts under consideration are not enough to offset the cost of the tax cuts, in part because Republicans—sensitive to Democratic charges that the reconciliation package would benefit the wealthy—have taken reductions to popular, expensive programs like Medicaid, Medicare and Social Security off the table.
“There are lots of reasons it won’t happen,” said the GOP lobbyist who speculated that the proposals will pass only if Trump gets on board publicly. “But fundamentally they need revenue and have to fight the optics of cutting programs for poor people in order to cut taxes for the rich.”
