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​House Republicans claim the tax plan they introduced Thursday keeps the top individual rate unchanged at 39.6 percent—the level at which it’s been capped for much of the past quarter-century. But a little-noticed provision effectively creates a new band in which income is taxed at over 45 percent.

Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn—a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent.

It hasn’t been advertised by Republicans, who have described their plan as maintaining the current top tax rate of 39.6 percent. And it goes against decades of GOP orthodoxy that raising taxes on the rich discourages work and reduces economic growth. Reached by phone, Steve Moore, a tax expert at The Heritage Foundation, said the surcharge was news to him. “I was just in a briefing with the White House on this,” he said. “They didn’t mention that. It seems kind of bizarre to me.”

The new rate stems from a provision in the bill intended to help the government recover, from the very wealthy, some of the benefits that lower-income taxpayers enjoy. Under the House GOP plan, all individuals—no matter whether they earn $35,000, $150,000 or $10 million—would pay the lowest rate, 12 percent, on their first $45,000 in taxable income. That’s a normal feature of current American tax law. But in the new plan, House Republicans want to claw back some of that benefit for individuals who earn more than $1 million, or couples earning more than $1.2 million.

Here’s how it would work: After the first $1 million in taxable income, the government would impose a 6 percent surcharge on every dollar earned, until it made up for the tax benefits that the rich receive from the low tax rate on that first $45,000. That surcharge remains until the government has clawed back the full $12,420, which would occur at about $1.2 million in taxable income. At that point, the surcharge disappears and the top tax rate drops back to 39.6 percent. This type of tax is sometimes called a “bubble tax,” because the marginal tax rate effectively bubbles up for a brief period before falling back to a lower level.

According to POLITICO’s calculation, the surcharge could raise more than $50 billion over a decade—money that will help the GOP meet the $1.5 trillion in increased deficits that their budget allows for and required to balance out tax cuts elsewhere. Balancing out those costs means that the bill can pass through budget reconciliation, and Senate Democrats can’t filibuster the bill.

Whom would it affect? According to the Internal Revenue Service, 438,000 tax filers had more than $1 million in taxable income in 2015, most of whom also make more than $1.2 million—meaning they’d pay the full additional $12,420 in bubble tax. Altogether, that surcharge could have raised roughly $5 billion in 2015, the latest year in which numbers are available, meaning it could potentially bring in around $50 billion over the next decade. That’s not huge money in a plan that cuts taxes $1.5 trillion—but every bit counts.

A spokesperson for the House Ways and Means Committee did not dispute the math but characterized the bubble as "the phase-out of a tax benefit" for high earners, rather than a surcharge. "The Tax Cuts and Jobs Act provides tax relief at every income level," said the spokesperson.

The idea of a bubble tax is not exactly new. In fact, the corporate tax code currently contains a bubble tax, which the GOP plan would eliminate. But the hidden nature of bubble taxes concerns experts who believe that the tax code should be easy to understand. “It certainly doesn’t promote tax transparency in terms of letting people readily understand the true rate structure,” said Alan Viard, a tax expert at the American Enterprise Institute. “I don’t think many people in the tax policy community are enthused about this kind of provision.”

The bubble tax also represents something of a break from nearly all Republican tax plans for the past few decades. Supply-side conservatives have long complained that the current tax rates on top earners are too high, discouraging work and reducing economic growth. House Republicans proposed lowering the top rate to 33 percent in the tax blueprint that they released last year. Over the past few weeks, faced with pressure from President Donald Trump to counter critics who said the plan is a giveaway to the rich and needing additional revenue, GOP leaders acceded to leaving the top rate unchanged. For a party that has focused intently on lowering marginal tax rates, it was a big concession.

Through the bubble tax, though, House Republicans quietly went a step further. The change could anger conservatives who dislike higher tax rates and weren’t expecting Republicans to include a bubble tax in their plan. After POLITICO explained the idea further to Moore, he said it was a “stupid policy” that goes against supply side theory. “All the benefits from rate reductions are from cutting the highest rate not the lowest rates,” he added.

For Democrats, the extra $50 billion from the rich is almost certain not to change their criticisms that the plan contains huge giveaways to the rich in the form of corporate tax cuts and the new 25 percent rate for so-called “pass through” businesses, which include everything from small businesses to hedge funds.

The bubble tax, in other words, is a way for the GOP to quietly raise much-needed revenue without changing the broader features of the bill. But it does mean that the top marginal tax rate would rise above 40 percent for the first time since 1986—the last year that Congress overhauled the tax code.




Sales of Chrysler Fiat Automobile N.V.’s (NYSE: FCAU) Fiat brand plunged 33% year over year to 1,769 units in October. For the first 10 months of the year, they are down 17% to 23,021. Fiat is barely a niche brand, based on recent results.The numbers were dragged down by two of Fiat’s most popular models. Sales of the base 500 model dropped 37% to 801. Sales of the 500X dropped 28% to 561. This was partially offset by a 34% increase of Model 300L to 158. Sales of the Spider fell from 444 to 248. Fiat lists the Spider as a new model and does not offer a percentage change in year-over-year sales.

Fiat management commented:

Sales of the Fiat 500L increased 34 percent last month for its best October sales since 2015. A redesigned exterior gives the 2018 500L an updated look, with new front and rear fascia design, bodyside molding design, wheel designs, daytime running light lens and rear side reflector design.The statement dodges the heart to the matter. Fiat is not a viable brand in the United States.Fiat sales are plagued by two things. The first is that the brand does poorly in a number of widely regarded consumer surveys, led by J.D. Power and Consumer Reports. It is hard for marketing messages to overwhelm this trouble, given how carefully this research is followed.Fiat’s second problem is that its low-price, low-weight, high-mileage cars face hard competition from every large car company. Honda, Nissan, Toyota and Ford have done a particularly good job in targeting this market segment. Some of their best-selling small cars sell well into the hundreds of thousands of units each year.


 GOAL IS                                                  SMOOTH  


Boeing Co.’s (NYSE: BA) share price rose by more than 2% last week, more than enough to extend the stock’s run as the best performer among the 30 stocks that make up the Dow Jones Industrial Average (DJIA). Shares added $5.29 last week to raise the year-to-date gain by nearly four percentage points to 68.1%.Of the three other Dow stocks closest to Boeing’s yearly gain, Apple Inc. (NASDAQ: AAPL) added nearly 6% after a stellar quarterly earnings report to pushed its year-to-date gain to nearly 49%. Caterpillar Inc. (NYSE: CAT) dipped by about 0.9% to a gain of 47.33%, and Visa Inc. (NYSE: V) tacked on 1.5% to bring its annual gain to nearly 43%.

Boeing’s share price dipped to a weekly low on Wednesday, the same day that the U.S. Senate Banking Committee held a hearing on President Trump’s nominee to head the U.S. Export Import Bank. A previously staunch opponent of the bank, Scott Garrett, assured senators that he has had a change of heart and he vowed to keep the bank “fully open and fully operational. Period.” Investors may still have doubts.More than anything that Boeing did last week, its shares probably reacted largely to news that arch-rival Airbus is being investigated in the United States, as well as in Britain and France, on bribery charges. Airbus is also seeking a replacement for the company’s long-time sales chief, John Leahy, who is retiring. Leahy did say last week that he will stay on until a successor is named.

Boeing stock closed at $261.75 on Friday, down about 0.3% on the day, in a 52-week trading range of $138.80 to $267.21. The 12-month consensus price target is $286.00, nearly $1 a share higher than last week’s target. The low price target is $203 and the high is $350


General Electric Co. (NYSE: GE) shares fell more than 3% last week as the stock ran its streak of new 52-week lows to nine consecutive days. The streak ended Friday when the stock posted a 1% pickup. For the week, however, the year-to-date loss rose by about two points to 36.3%, to hold onto GE’s ranking as the worst performing equity on the Dow Jones Industrial Average index (DJIA).This is GE’s 16th consecutive week as the Dow’s worst performer. The company still has a big lead over the second worst stock, Verizon Communications Inc. (NYSE: VZ), down 11.2% for the year, and third-worst International Business Machines Corp. (NYSE: IBM), now down 8.7%. Only seven of the 30 Dow stocks have traded down so far this year.For the first time in more than five years, GE stock closed below $20 a share on Thursday. There does not appear to have been an event or rumor that weighed on the stock last week, but more a rush for the exits following a price target cut by analyst Stephen Tusa at JPMorgan.Tusa was the first to cut GE’s 12-month target to $20, and he chopped that to $19 following the company’s third-quarter earnings report and lowered guidance. On Wednesday he cut his 12-month target to $17.That last cut was likely based on a higher probability that GE will soon have to announce a cut to its $0.96 annual dividend. At Friday’s closing price, that’s a yield of 4.5%. On the company’s conference call, the chief financial officer noted that third-quarter operating cash flow was adversely affected by lower-than-expected earnings in the Power division and “underperformance in working capital.”When CEO John Flannery reveals his strategy on November 13, the only surprise most analysts expect is how much he will slice from the dividend. Still, when the stock price dipped below $20 it brought out some buyers, as Friday’s gain indicated.GE’s shares closed up 1% Friday, at $20.14 in a 52-week trading range of $19.63 to $32.38. The consensus 12-month price target on the stock is $25.73, down 20 cents from last week’s target. The price target range is $17 to $36