Republicans are keenly aware that their goal of extending President Donald Trump's 2017 tax cut legislation for another 10 years is unpopular with the electorate, according to a new report.
In a Friday article in Axios, journalists Marc Caputo and Neil Irwin wrote that the Trump administration is mulling the idea of allowing the top tax rate on the richest Americans to go up in exchange for no longer taxing tips. Republicans emphasize that while discussions are fluid and nothing is set in stone, allowing the top tax rate to increase slightly from 37% to 39.6% (which was the top rate prior to 2018) would give the GOP more room to remove taxes on tips — which was one of Trump's 2024 campaign promises.
Additionally, one White House official speaking anonymously told Axios that the GOP understands that its current budget legislation — which cuts Medicaid by more than $800 billion while extending the 2017 tax cuts that disproportionately benefit the richest Americans — is politically fraught.
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"If we renew tax cuts for the rich paid for by throwing people off Medicaid, we're gonna get f---ing slaughtered," the official said.
Extending the tax cuts is a high priority for the administration, and Treasury Secretary Scott Bessent has said there would be "economic calamity" if Congress allowed them to expire. And the Congressional Budget Office has estimated that a 10-year extension of the tax cuts could cost approximately $4.6 trillion.
However, the actual implementation of abolishing taxes on tips has yet to be fully fleshed out. Last year, the left-leaning Center for American Progress (CAP) published a report that found there would be significant loopholes that wealthy Americans could exploit depending on how ending taxes on tips is actually legislated. CAP researchers theorized that, based on Sen. Ted Cruz's (R-Texas) "No Tax on Tips Act," it may be possible for hedge fund managers, lawyers, consultants and others to classify their fees as "tips" in order to significantly cut their own taxes.
"[T]he No Tax on Tips Act contains few, if any, guardrails to prevent high-income professionals such as hedge fund managers from shifting their compensation to a tax-free tipping model. Given the difference in tax rates, the tax breaks from exempting part of these high earners’ income from income taxes would be far larger than any tax breaks for lower-income workers," CAP explained. "For instance, a married couple making $1 million in wages could get a tax cut of $180,000 by shifting half of those wages to tax-free tips."
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Click here to read Axios' full report.