House tax plan 'highly likely' to include fourth rate on wealthy, likely not higher than 39.6%, source says

Key Points
  • The House tax plan is "highly likely" to include a fourth, higher rate on the wealthy, a senior Republican tells CNBC.
  • The rate likely will not be higher than 39.6 percent, the current top income tax rate.
  • Republicans have faced criticism for the perception that their tax framework helps the wealthy.
House tax plan likely to include fourth bracket: Source

House Republicans are leaning toward setting a higher tax rate for wealthy Americans than the one outlined in the framework unveiled by the White House and GOP leadership last week.

That plan called for consolidating the current seven tax rates into just three — 12, 25 and 35 percent. However, it gave lawmakers the option of adding a fourth rate to ensure that high-income households do not receive the biggest benefits—and a senior Republican said they are "highly likely" to take it.

The Republican, who spoke on the condition of anonymity to discuss internal negotiations, said the precise rate has not been determined. But, the person said, it will not be higher than the current top rate of 39.6 percent.

Publicly, top Republicans in both chambers have pointed to the possibility of a fourth rate to deflect criticism that their tax plan primarily helps the wealthy. Senate Finance Committee Chairman Orrin Hatch of Utah attacked a recent study by the nonpartisan Tax Policy Center that found half of the tax benefits in the GOP proposal would accrue to the wealthy. Speaking at a hearing on Tuesday, Hatch said that no numbers have been finalized and called the report a "blank-filling exercise designed to cast the framework in the worst possible light."

"The framework does not include any specific information about things like the break points for the individual tax brackets, the value and indexing of the enhanced child tax credit, or the precise rate for the top bracket," Hatch said. "Without those and other key pieces of information, there is simply no way for any outside party to produce a credible analysis of the framework, let alone a detailed estimate of revenue and the distribution of tax burden."

House Speaker Paul Ryan last week said the goal of tax reform is to help the middle class—and suggested the fourth rate could play a key role in fulfilling that promise.

"The fourth rate—the goal of that is to make sure that the benefit on income earners attributes to the middle class," he said. Though he cautioned that the tax-writing committees would fill in the details of the framework, "we introduce the idea that the rate reduction won't be as significant for high-income earners."

One influential conservative lawmaker has also signaled openness to the fourth rate. Republican Study Committee Chairman Mark Walker said he discussed the issue during dinner Monday with Rep. Kevin Brady, chairman of the House tax-writing committee.

"I don't see the need for that upper end bracket at this point, but I don't think it's completely off the table" if it helps the proposal maintain momentum, Walker said Tuesday during a panel discussion at the Heritage Foundation.

President Trump has called relief for working-class households a "red line" in any tax bill, and he has repeatedly claimed that the rich may not be happy with the proposal. When the GOP plan was unveiled last week, Trump said that neither he nor other wealthy Americans would benefit.

"My plan is for the working people, and my plan is for jobs," he told reporters before leaving to pitch the plan in Indiana. "I don't benefit … I think there's very little benefit for people of wealth."

Even if the top tax rate remains at 39.6 percent, however, several other provisions could still lower the amount that the rich pay in taxes. The GOP plan would also repeal the estate tax and the alternative minimum tax as well as set a 25 percent rate for pass-through businesses—all of which could wind up helping wealthy households.

"In an era of rising populism, the [Republican] tax framework is a major tax cut for businesses and the very highest income Americans and only a small tax cut for middle-income households," wrote Howard Gleckman, senior fellow at the Tax Policy Center. "Seeking to balance the demands of their dueling business and working class constituencies, President Trump and the congressional Republican leadership have tilted heavily towards traditional GOP business interests."

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