Millionaires may soon have to pay more taxes in US
What's the story
Republican leaders in the US are eyeing a new tax bracket for high-income earners.
They have proposed a 40% tax rate for people earning over $1 million a year, according to Bloomberg.
The proposal is reportedly backed by US Senate officials and the Donald Trump administration.
Meanwhile, Deputy Treasury Secretary Michael Faulkender confirmed that talks are underway with Congress on different possible offsets for the proposed tax.
Tax strategies
Discussions underway to minimize tax bill cost
"We are investigating and having discussions with Congress about a variety of potential offset," Faulkender said, adding that "many, many ideas" are being floated to minimize the cost of the tax bill.
This shows a proactive approach by the government toward managing the financial implications of this proposed tax policy change.
Funding strategy
Reform aims to fund major tax package
The proposal for a new tax bracket comes as Republicans look for ways to fund a major tax package before the end of 2025.
That's when many tax cuts from Trump's first term are due to expire.
The current highest tax rate is 37% for individuals earning over $626,350 a year, making it essential to look for alternative funding methods such as raising taxes on top earners.
Implications
Proposal could impact state and local tax deduction
Raising taxes on top earners is being considered as a possible way to cover costs associated with expanding the state and local tax (SALT) deduction.
This is especially relevant for swing-district Republicans in states such as New York, New Jersey, and California where this deduction holds political importance.
However, an increase in the top tax rate could provoke backlash from business owners of partnerships, LLCs, and other entities.