Context:

President Trump is proposing a new tax bracket for individuals earning over $2.5 million annually, with income above that threshold taxed at 39.6 percent, effectively reversing part of the 2017 Tax Cuts and Jobs Act. This plan has alarmed many Republicans who traditionally oppose tax increases, especially as they navigate complex fiscal deals involving potential cuts to programs like Medicaid. The proposal is seen as a strategy to balance budgetary concerns by offsetting the costs of extending previous tax cuts, despite Republican worries about the public perception of cutting benefits for the poor. Additional proposed measures include increasing taxes on stock buybacks and limiting tax deductions for high executive compensation, alongside ending favorable tax treatments for private-equity and hedge fund managers. As the House prepares to release its tax bill draft, the proposal's future depends on internal Republican negotiations and President Trump's influence on the party's fiscal strategy.

Dive Deeper:

• President Trump has proposed creating a new top income tax bracket for those earning more than $2.5 million per year, with income above that threshold taxed at 39.6 percent, aiming to partially reverse the tax cuts enacted in 2017.

• The proposal has faced resistance from many Republicans who generally favor tax reductions, creating tension as lawmakers work on a comprehensive fiscal package that also involves potential Medicaid cuts.

• Trump believes that raising taxes on the wealthy could help protect Medicaid funding, as Republicans face the challenge of financing the continuation of prior tax cuts without sacrificing social programs.

• Additional tax reforms under consideration include increasing taxes on stock buybacks and limiting deductions for executive compensation, reflecting a populist approach to tax policy.

• The plan also seeks to eliminate a tax advantage that allows private-equity and hedge fund managers to pay lower rates on their earnings, further aligning with the proposal's aim to target wealthier individuals.

• Republicans are aware of the political implications of their fiscal strategies, especially the optics of reducing benefits for the poor while extending tax cuts that primarily benefit the wealthy.

• The proposal's viability will depend on the balance of opinions within the Republican Party and the extent of President Trump's influence, as the House moves towards finalizing its tax legislation draft.