As Congress debates a major tax package, rumors have swirled about whether President Trump and Republican lawmakers might U-turn and seek to “tax the rich.” Unfortunately, while reforms that would make the very wealthiest finally pay their fair share are much needed, these proposals don’t add up—and shouldn’t distract from a plan that will hurt ordinary families while delivering big tax breaks for giant corporations and the ultra-wealthy.

Wait...is Trump actually trying to tax the wealthy?

In a word, no. We understand why it’s turning heads that a billionaire president and a party long known for championing tax cuts for the wealthy are discussing possibly asking the richest to contribute a small fraction of their ever-escalating fortunes toward the public good. But observers should be treating these developments very skeptically.

What’s going on? Strategist Steve Bannon has been beating the drum about taxing the rich for months. Most congressional Republicans have been quick to firmly reject the idea, and the legislative text they’ve put forward thus far does not include plans to do so. As for Trump—famously known for his consistency—after seeming open to the idea in April and then quickly reversing course, he’s reportedly back on board, though has also sent mixed signals on social media.

If we thought Congress was about to pass a deal that would increase taxes on the very wealthiest, we’d be thrilled. Ensuring billionaires can't pay less in taxes than teachers or nurses should be a priority for lawmakers who are undertaking tax reform.

We took a look at the specifics of what’s being discussed, and came away disappointed, if not surprised. There’s a big difference between claiming to tax the rich and actually doing it. We lament that a news cycle seems to be giving Trump credit for trying to tax the rich when, any way you square it, we expect a giveaway to the ultra-wealthy and big corporations at the expense of ordinary people.

In the weeds: why the rumored proposals don't add up

The reason Congress is scrambling to reform the tax code is that a major tax law from Trump’s first term — the Tax Cuts and Jobs Act (TCJA) — is expiring. The TCJA was highly regressive, slashing the corporate tax rate and giving a number of tax breaks to ultra-wealthy households.

This year, the TCJA’s individual tax provisions, as well as some of its business provisions, expire or phase out. This means that unless Congress acts, the tax code will revert to a more progressive, pre-TCJA state. So, if Congress really wants to tax the rich, it could just do nothing.

Of course, Congress is pushing for an extension of the TCJA, at a cost of as much as $5.5 trillion. This massive price tag has left some lawmakers scrambling to offset the cost. Most proposals call for slashing funding for critical safety-net programs. But it turns out that taking healthcare and food away from ordinary people to give tax breaks to billionaires is deeply unpopular.

Perhaps in response to intense public opposition, the Trump administration has floated a number of proposals for taxing rich households—which would do little to actually tax the very wealthiest, and in some cases, constitute a tax break.

• Allowing the cut to the TCJA’s top income tax rate to expire lets the wealthiest off the hook: Reverting the top tax rate to the pre-TCJA rate of 39.6% would be better than extending the expiring top rate of 37%, but this change wouldn’t substantially impact billionaire wealth. The richest people in the US generally tend to make money from owning assets, not from work. Although the TCJA was incredibly generous to the top 1%, only a small fraction of that was because of its income tax reductions — the TCJA’s tax cuts for business income, corporate profits, and inheritance were nearly 20 times more lucrative for the top 1%.
• A new bracket at $2.5 million would still be a massive tax break for the wealthy: If the top income tax bracket is changed to begin at income over $2.5 million ($5 million for couples), multimillionaires will actually receive a net income tax break compared to the pre-TCJA tax code, because most of their income would still be taxed at lower rates. For the highest-income households, a new bracket at $2.5 million would affect just one-third of their income.
• Closing the carried interest loophole would not offset other tax giveaways: This would be a positive step, preventing investment managers from categorizing their income as capital gains and taking advantage of a lower tax rate. But just ending this loophole would not have a large enough impact to offset the TCJA's other tax changes. Allowing the TCJA's estate tax cuts to expire, for instance, would raise around 13 times more revenue more revenue.

The Reality: A Distraction from a Toxic Billionaire Tax Giveaway

Most importantly, what matters most is the overall deal: who it hurts, and who it helps—in wonk terms, its distributional impact. At the end of the day, even if the provisions above were included in a tax package that renews the TCJA, they would be more than offset by other handouts for the wealthy.

Unfortunately, we expect to see a deal that doubles down on the trend of recent decades: major tax code reforms that primarily benefit the wealthiest, while depriving everyone else of revenue. This is how we got a rigged tax code that does far less than it should to address inequality and help regular folks.

There is some good news. The fact that Republicans are talking about taxing the rich does mean something. It’s a sign of how much support there is for fairer tax policy. Poll after poll shows high levels of support taxing the very wealthiest, and the idea is popular across party lines and even with some millionaires. Proposals that would meaningfully improve the US tax code—including by providing a far more generous child tax credit and actually taxing billionaires and corporations—were widely endorsed in the last Congress and backed by President Biden.

The hubbub around “taxing the rich” also underscores just how unpopular the current tax deal is. Members of Congress have been taken to task at town halls across the country by concerned constituents. Their concerns are well-founded, since the deal as it stands is one that would be bad for so many—including seniors, children, and working parents—but great for the 0.1%.

Trying to distract people with fake plans to “tax the rich” could seem like a politically savvy way to take the heat off a destructive budget plan, but we shouldn’t allow pseudo-populist bells and whistles to serve as a smokescreen for more billionaire handouts that come at the expense of everyone else. Middling “tax the rich” proposals floated by the Trump administration and Republicans in Congress should be seen as unserious distractions from a destructive, inequality-fueling agenda.