3 Considerations For Trump’s Proposed 39.6% Tax Rate On Top Earners

It is reported that Trump seeks to pay for his proposed tax cuts by increasing the top tax rate on individuals from 37% to 39.6%. This article provides an overview of his proposal as well as 3 important considerations for this 2.6% tax rate increase on the top income individuals.

Overview

The current top tax rate for individuals is 37%. In 2025, this tax rate applies to single individuals with income over $626,350 and married individuals with income over $751,600. While cutting taxes has been a long-standing part of Trump’s platform, his recent social media post on Truth Social suggests a reversal.

On May 9, 2025, Trump stated on Truth Social:

“The problem with even a “TINY” tax increase for the RICH, which I and all others would graciously accept in order to help the lower and middle income workers, is that the Radical Left Democrat Lunatics would go around screaming, “Read my lips,” the fabled Quote by George Bush the Elder that is said to have cost him the Election. NO, Ross Perot cost him the Election! In any event, Republicans should probably not do it, but I’m OK if they do!!!”

As reported by multiple outlets, this tiny tax increase would be an increase in tax rates from 37% to 39.6% for income greater than $2.5 million for single taxpayers and $5 million for married taxpayers. While substantial, there are three important things to note about this proposed change.

1. Trump’s 2.6% Increase In Tax Rates Does Not Affect Most Taxpayers.

According to the IRS, in 2022, only 295,727 tax returns had income of at least $2 million. While this might seem like a lot of tax returns, it is, in fact, only 0.2% of all tax returns filed in 2022. Tax liabilities would not increase under this proposed change for the remaining 99.8% of taxpayers with income less than $2 million (and several with income between $2 million and $2.5 million). This means that outside of annual changes to the income tax brackets, nearly every taxpayer’s income tax liability would remain unchanged.

2. Trump’s Tax Rate Increase Only Affects Income, Leaving Many Ultra-Wealthy Less Affected.

The U.S. does not tax wealth. As I wrote in a Poole Thought Leadership article, many of the ultra-wealthy individuals in the U.S. do not pay income taxes because they do not have regular and substantial income on an annual basis. As reported by Yahoo Finance, an executive like Mark Zuckerberg only earns $1 of income each year from his work as CEO of Meta. However, he received $24.4 million in other compensation. Given the tax laws surrounding stock-based compensation, this would leave an executive like Zuckerberg less affected by such an increase in the top tax rate, despite him being among the world’s wealthiest people.

One may question how executives who receive such low annual income while retaining such high net worth can afford a lavish lifestyle. ProPublica shows that these high-wealth individuals often employ a tax avoidance scheme called “Buy, Borrow, Die.” Under this scheme, executives buy (or create) a company and make it grow to be worth a lot of money. They then borrow money against their holdings. This allows the individual to receive cash flows for their wealth. They also receive a tax deduction for the interest that they pay on their borrowings. In turn, banks are happy to lend to these high-wealth individuals because they can pledge significant assets as collateral against their borrowings. Lastly, the high-wealth individuals eventually pass away. At this time, their heirs receive ownership of the company on a stepped-up basis, meaning that they do not have to pay taxes on the increase in the company’s value.

The top income tax rate increase would likely still affect the ultra-wealthy in some respects. However, for an executive like Zuckerberg, it would not be as simple as assuming he would pay an extra 2.6% in income taxes on the bulk of his $24.4 million in non-salary compensation.

3. The Legislative Branch (Not Trump) Creates Tax Laws In The U.S.

Trump is the figurehead of the Republican Party and a key staple to controlling America’s political agenda for at least the next two years. Trump has a significant sway in the ideology of this party. However, one thing that he cannot do is create tax laws. Trump can suggest tax legislation. In fact, many tax laws often originate from suggestions made by the executive branch. However, it is ultimately up to the legislative branch, and, in particular, the House Ways and Means Committee, to draft tax legislation.

There are many steps in the process before Trump even formally weighs in on the tax legislation. For instance, the House Ways and Means Committee must agree on the bill, the House of Representatives must pass the bill, the Senate Finance Committee must review and rewrite the bill, the Senate must pass the bill, and the House of Representatives and Senate must agree on a compromise version of the bill. Only then does the tax bill come to Trump’s desk. Thus, even though Trump can suggest a 2.6% increase in the top tax rate, there are many other key players that help determine and shape what eventually becomes law.

Conclusion

As reported by Forbes, Trump has a large shopping cart of tax cuts and law changes, and he needs to find a way to pay for them all. The proposed increase in tax rates is a step toward moving tax legislation forward, as it would help raise those funds without affecting the tax liabilities among most taxpayers (a key promise under President Biden’s tax platform as well). However, without wealth taxes in the U.S., this increase in tax rates would primarily affect non-executive high-earners. Furthermore, Trump must ensure he can get the House of Representatives and the Senate on board, as he does not have the authority to propose this legislation. These 3 key considerations help shed light on the nuance of a seemingly simple increase in tax rates for the top earning individuals.