Why Raising The Top Tax Rate Is A Recipe For Economic Decline

President Trump is apparently pushing for a higher tax rate. That’s a nonstarter.

The tax regime that President Trump put into place in his first term, his tax cuts, were a boon to the economy. They actually disproportionately benefited people who were middle and lower class. Revising the tax regime to pay for more loopholes and tax breaks in particular areas by increasing taxes on the highest income earners will sink investment capital. That’s what it does.

As somebody who has been in most tax brackets at one point in my life, I can tell you I will invest less if I have less money to invest. That’s true for everyone who is a high net earner. Increasing the income tax on the top income tax bracket in order to pay for more useless government spending — because nobody has the actual guts to say in American politics that we spend too much on our social welfare programs, which we do, particularly our means tested social welfare programs — will break the American economy.

It’s like shifting deckchairs on the Titanic.

Increasing the marginal tax rate at the top by 2% or something similar is not going to save anything. If the Republican Party is now the tax-raising party and the tariff party, we will have to see how that works out for them at the polls.

I do not think it is going to work out particularly well.

WATCH: The Ben Shapiro Show

According to some reports, President Trump is privately urging speaker Mike Johnson to raise the top tax rate and close the so-called “carried interest loophole.”

You hear about the “carried interest loophole” all the time. Very often the media will use a term and call it a loophole when it’s not a loophole at all. Here’s an example: They will refer to a “gun show loophole,” claiming that if you’re a federally licensed firearms dealer, you can just go to a gun show and sell a gun randomly, which is not true. They say the “gun show loophole” means a private person who sells a gun to his friend doesn’t have to necessarily go through all of the federal background check, which just means that if you are a federally licensed firearms dealer and you’re a private individual, that these rules don’t apply to you in the same way.

So what is the “carried interest loophole”? Is it a loophole at all? What is carried interest? “Carried interest” works like this: Fund managers typically receive two forms of compensation. If you work at hedge fund or in private equity or venture capital, you have two forms of being paid.

One is a management fee, which is just income. You simply get paid a flat fee to handle people’s portfolios.

Then there’s the so-called “carried interest,” which is a share of the fund’s profits. The fund makes a profit; you get a share of the profit. But in order for it to qualify for capital gains tax as opposed to income tax, the underlying investments have to be held for more than three years.

Management fees are taxed at the regular income rate; carried interest is taxed as the long-term capital gain at a maximum rate of 20% if the underlying investments are held for more than three years.

So here is the question. If you have a share of the profits, isn’t that more like owning a stock? That’s the reason why it’s not treated as a form of typical income. It’s more like selling a stock because you actually are getting a share of stock that was profitable and then it was sold. Thus it’s more like a capital gain than it is like income.

Now you can make an argument that capital gains should be taxed the same as income. But stop pretending that the “carried interest loophole” is a form of normal income that’s getting carved out for hedge fund managers. That’s not what it is.

This populist leftist economic policy for heavy trade restrictionism for the sake of trade restrictionism as a subsidy to particular areas of the American economy added to higher tax rates, and I’m wondering what the difference is between that economic policy per se and leftist Democrat senator Sherrod Brown’s economic policy when he was senator from Ohio.

That is not the economic policy that President Trump enacted in his first term that was so wildly successful in increasing the earnings of everybody from the bottom part of the spectrum to the top part of the spectrum.

This would be a mistake.