Republicans in the White House, Senate and House are drafting analyses on how best to craft a new tax bracket for the wealthiest Americans, work that signals the GOP under President Donald Trump is seriously considering ideas to raise taxes on the rich.

The House proposal would set the new rate at 40% for taxpayers earning $1 million or more a year, according to people familiar with the proposal. Economic policy aides in the Senate and the Trump administration have been studying the idea as well, according to people briefed on the work. 

A White House official, speaking on the condition of anonymity to discuss private conversations, said Trump is open to the idea of a new top tax bracket. However, the person emphasized that the higher rate should kick in at a threshold far greater than $1 million.

“We are investigating and having discussions with Congress about a variety of potential offsets,” Deputy Treasury Secretary Michael Faulkender said Tuesday at an event in Washington, noting that there are “many, many ideas” being studied to minimize the total cost of the tax bill though no decisions have been made.

Treasury Secretary Scott Bessent said in an interview Monday with Bloomberg News that “everything is on the table” with regards to the tax bill. 

A Senate Finance Committee spokesperson declined to comment. Representatives for the White House and the House Ways and Means Committee did not immediately provide comment.

The discussions about a new tax bracket for millionaires come as Republicans are looking for ways to pay for a sweeping tax bill by the end of 2025 when several of Trump’s first-term cuts expire. The current top tax rate is 37% for individuals earning more than $626,350 a year.

The higher rates on top earners could be a way to offset the cost of an expanded state and local tax deduction, a popular and politically important tax break for swing district Republicans in New York, New Jersey and California, one person said. 

The SALT deduction benefits skew toward higher-earners, so offsetting the cost with a millionaires bracket would serve a way to minimize the tax savings flowing to wealthy Americans in the bill. Republicans are considering expanding the SALT cap from $10,000 to as high as $25,000 per person.

Trump, in addition to renewing his 2017 cuts for households and privately held businesses, wants to pass campaign proposals, including eliminating taxes on tips and overtime pay, and creating new deductions for seniors.

Republicans on Capitol Hill are trying to make his wish list come true, while putting some limits on the boost to budget deficits.not supported.

Pass-through problem

Raising the top tax rate is likely to spark some backlash from business owners of partnerships, LLCs and other pass-through entities who pay their company tax bills based on the individual rates in the tax code. Senator Thom Tillis, a North Carolina Republican, has said Congress should put in limits on a top tax bracket to reduce levies of those privately held companies.

A new millionaire rate would also be an extraordinary break from Republican orthodoxy which has long espoused the idea of no-new-taxes. 

Groups including Club for Growth and Americans for Tax Reform have spent years from powerful perches in Washington making sure Republicans did not raise taxes. But the party has changed under Trump and has taken on a more populist bent embracing ideas that were once taboo.

Still, there are swaths of the Republican Party opposed to the idea.

“It’s not going to happen,” Americans for Tax Reform’s Grover Norquist said on Tuesday, speaking at an event before Faulkender. House leaders, including Speaker Mike Johnson, have also downplayed the idea, saying they are looking for ways to cut — not raise — taxes.

“We’ll have to see,” Johnson said last week when pressed by a reporter.  

Benjamin Krain/Photographer: Benjamin Krain/Get

Individuals and businesses in all of Tennessee and Arkansas who were affected by severe storms, tornadoes, flooding and, in Tennessee, by straight-line winds that began on April 2, now have until Nov. 3 to file various federal individual and business returns and make tax payments.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency; individuals and households that reside or have a business in Tennessee’s 95 counties or the 75 counties of Arkansas qualify for it. The current list of eligible localities is on the IRS Tax Relief in Disaster Situations page.

The relief postpones various tax filing and payment deadlines that occurred from April 2, 2025, through Nov. 3, 2025. Affected individuals and businesses will have until Nov. 3, 2025, to file returns and pay any taxes that were originally due during this period, including:

• Individual income tax returns and payments normally due on April 15, 2025.
• 2024 contributions to IRAs and health savings accounts for eligible taxpayers.
• Quarterly estimated tax payments normally due on April 15, June 16 and Sept. 15, 2025.
• Quarterly payroll and excise tax returns normally due on April 30, July 31 and Oct. 31, 2025.
• Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025.
• Calendar-year tax-exempt organization returns normally due on May 15, 2025.

Penalties for failing to make payroll and excise tax deposits due on or after April 2 and before April 17, 2025, will also be abated if the deposits are made by April 17, 2025.
The Disaster Assistance and Emergency Relief for Individuals and Businesses page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period. 

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record in the disaster area. These taxpayers do not need to contact the agency to get this relief.

An affected taxpayer may not have an address of record in the area because, for example, they moved to the area after filing their return. If an affected taxpayer in those circumstances receives a late filing or late payment penalty notice from the agency for the postponement period, the taxpayer should call the IRS Special Services at (866) 562-5227 to update their address and request disaster tax relief. 

(Read more: Areas across the country qualify for natural disaster-related tax relief.)

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS Special Services toll-free number above. This also includes workers providing relief activities and who are affiliated with a recognized government or philanthropic organization.

Disaster area tax preparers with clients outside the disaster area can choose to use the Bulk Requests from Practitioners for Disaster Relief option, which is described on IRS.gov. 

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year when the loss occurred (in this instance, the 2025 return normally filed next year), or the return for the prior year (2024). Taxpayers have up to six months after the due date of their federal income tax return for the disaster year (without regard to any extension of time to file) to make the election. For individual taxpayers, this means Oct. 15, 2026. (Read more on personal casualty loss deductions.)

Write the FEMA declaration number — 3625-EM for Tennessee, 3627-EM for Arkansas — on any return claiming a loss.

The conclusion of the tax filing season Tuesday is about to provide early clues toward resolving a nagging question hanging over the U.S. Treasury: How honest will Americans be about their income when there are suddenly fewer auditors to check them?

The answer has ramifications extending from Treasury debt markets already embroiled in tariff-related turmoil to legislative struggles in Washington over the debt ceiling and a proposed new round of tax cuts. 

A drop in tax collections would likely move forward a debt ceiling deadline from the August to September timeline forecast by the non-partisan Congressional Budget Office. A sharp falloff also could ratchet up concerns about the fiscal burden of a proposed Republican tax package that matches giant tax cuts with much smaller spending reductions. 

President Donald Trump’s administration this year terminated more than 7,000 Internal Revenue Service employees, mostly involved in tax enforcement, and ultimately may cut the agency’s workforce by 25%.

Analysts have warned that will drive up tax avoidance as well-off taxpayers’ fear of audits eases, though it’s not clear how quickly or how much. 

There are early signs tax collections are holding up this year anyway. Through March, gross U.S. budget receipts for the fiscal year were up 3% to $2.26 trillion, according to the Treasury Department.

“That seems to suggest we may have a robust tax filing season in terms of revenue,” Deputy Treasury Secretary Michael Faulkender said on Bloomberg Television Friday. 

There are lingering doubts raised by IRS filing statistics. As of April 4, the IRS saw a 0.4% reduction in the number of returns received compared to the 2024 season. The dollar value of refunds was up 5%, higher than the inflation rate. 

“A major area of concern is wealthy taxpayers who don’t file when it’s clear that the IRS audit rate is low,” said John Koskinen, a former IRS commissioner. “The non-filers tend to be concentrated in wealthier individuals so they represent more significant revenue loss on an individual basis.”

Jessica Riedl, a senior fellow at the Manhattan Institute, said it will probably take longer for receipts to drop because the tax season was already underway when the IRS layoffs began.

“The short-term effects will likely be muted because the tax filing season is nearing an end,” she said. “However, the revenue loss may begin spiking this summer when corporations file their next quarterly taxes, and then rise further by next year’s tax season.” 

Even so, voluntary tax compliance was a high 85% in 2022, according to the IRS. 

“I’m not immediately convinced that there’s going to be some dramatic falloff in compliance right now,” said Pete Sepp, president of the National Taxpayers Union. 

Future years could be very different. The Yale Budget Lab forecast that laying off about 18,000 IRS employees would result in a net revenue loss of roughly $159 billion over ten years. That could rise to as much as $1.6 trillion over 10 years if noncompliance is high, the group said.  

Vanessa Williamson, a senior fellow at the Brookings Institution, said the Trump administration cuts are largely undoing efforts by former President Joe Biden to audit those making more than $1 million per year. She said the IRS could return to its footing in the 2010s when enforcement was lax and audits of those individuals dropped by 70%.

“It could easily become a $100-billion-a-year problem,” she said, noting the IRS high-wealth unit lost 38% of its employees.

A recent change allowing the agency to share taxpayer data with immigration officials could also result in a further loss of $313 billion in the coming decade if that discourages migrants from paying taxes out of fear of deportation, according to the Yale Budget Lab.

Treasury market

Wall Street investors and strategists are closely monitoring the magnitude of this week’s tax collections amid the sharp swings in the bond market driven by the Trump administration’s trade war.

In the near-term, the amount of cash flowing out of the money markets to pay Uncle Sam will impact funding costs. Higher tax receipts for the federal government means more liquidity is drained from the overall financial system, likely pushing up the cost of borrowing in the overnight repurchase market — which was already strained by last week’s market chaos. 

Wells Fargo strategists, who estimate that this April’s tax receipts will boost the Treasury’s General Account by as much as $300 billion, last week flagged the risk of higher repo rates amid the tax payments.

Looking further out, the market is focused on what the April tax receipts mean for the Treasury’s cash balance in light of the debt ceiling. Wrightson ICAP, for one, forecast last month with low conviction an 11% increase in non-withheld income tax collections in the April to May period, compared to last year. 

The amount coming into the Treasury’s coffers also carries implications for the Federal Reserve’s balance sheet unwind, which on April 1 slowed to a cap of $5 billion in Treasuries per month. Officials are closely watching the level of reserves in the banking system and gauging broader financial liquidity to determine how much longer the quantitative tightening process can continue.

Customer service

Businesses have other reasons for concern about the IRS layoffs, including greater difficulty getting advice from the agency on complex tax questions.

“The old adage ‘if you break it, you’ve bought it’ applies here,” Sepp said. “They’re doing the breaking right now, so they own the problem.”

Sepp said the NTU is very concerned about deep coming cuts to the office of the Taxpayer Advocate — an internal means for taxpayers to challenge IRS decisions — and the risk of further delays in efforts to modernize the agency’s creaky data systems.  

It’s unclear, he said, if Elon Musk’s Department of Government Efficiency is going to scrap the modernization effort and start over. 

For businesses with complex tax problems, proposals to employ artificial chatbots instead of humans could be especially problematic, said Daniel Reck, a University of Maryland economics professor who researches tax policy. 

“That could turn into a pretty Kafkaesque experience, and it’s already not a lot of fun,” said Reck.