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TaxBuzz Top 5 - Trump Reverses Course on Tax Hike for Wealthy, IRS Loses Nearly One-Third of Tax Auditors & More

by
Rebekah Barton
on
5/9/2025
TaxBuzz Top 5 - Trump Reverses Course on Tax Hike for Wealthy, IRS Loses Nearly One-Third of Tax Auditors & More

Each Friday, TaxBuzz brings you the top five tax and accounting headlines you need to know from the workweek. We know life can get busy and you don't always have time to scroll through your news feed to stay informed.

We weed through all of the week's stories to showcase the most important updates in the tax and accounting world.

1. Trump Reverses Course, Proposes New Tax Bracket for Ultra-Wealthy to Offset Middle-Class Cuts

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Credit: Win McNamee/Getty Images News

In a significant policy shift, President Donald Trump has proposed creating a new top income tax bracket targeting the wealthiest Americans. This move comes as part of his broader tax reform agenda aimed at extending the 2017 Tax Cuts and Jobs Act (TCJA) and providing additional relief to middle- and working-class families.

According to sources familiar with recent discussions, Trump has urged House Speaker Mike Johnson to consider raising the top individual income tax rate from 37% to 39.6% for individuals earning over $2.5 million and couples earning over $5 million annually. The proposal also includes eliminating the carried interest loophole, which allows investment managers to pay lower capital gains taxes on certain income. 

This proposal marks a departure from Trump's previous stance. Just two weeks prior, he had dismissed the idea of increasing taxes on the wealthy. However, the new approach aims to address concerns about the national debt and fund tax cuts for lower-income groups without resorting to significant spending reductions in programs like Medicaid. 

The proposed tax increase is expected to affect approximately 150,000 to 200,000 households and could raise an estimated $59.3 billion over a decade. While some Republicans view this as a pragmatic step to balance the budget, others, including former Vice President Mike Pence, have expressed opposition, arguing it could negatively impact small business owners who file taxes as individuals. 

As the administration seeks to solidify support for the broader tax package, which includes making the TCJA provisions permanent and introducing new tax breaks for the middle class, the debate over taxing the ultra-wealthy is poised to become a central issue in the coming legislative discussions.

2. Santa Cruz Implements First Local Soda Tax in California Since 2018, Challenging State Ban

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Credit: Stockah/GettyImages

Santa Cruz, California, has enacted a 2-cent-per-ounce tax on sugar-sweetened beverages, becoming the first city in the state to do so since a 2018 law prohibited new local beverage taxes. The tax, per the AP, was approved by voters in November 2024 as Measure Z, took effect on May 1, 2025, and is projected to generate approximately $1.3 million annually for the city's general fund.

Measure Z targets distributors of nonalcoholic beverages with added caloric sweeteners and 40 or more calories per 12 fluid ounces, including sodas, sweetened teas, energy drinks, and slushies. Exemptions apply to small businesses with annual gross receipts under $500,000, as well as to certain products like infant formula, medical beverages, and 100% fruit juices. 

The implementation of this tax directly challenges the state's 2018 "Keep Groceries Affordable Act," which banned new local taxes on food and beverages until 2031. Santa Cruz officials argue that, as a charter city, they possess the authority to enact such measures. This stance is bolstered by a 2023 appellate court decision that struck down penalty provisions of the 2018 law as unconstitutional, though the overall preemption remains in place.

The beverage industry, led by the American Beverage Association, opposed Measure Z, spending over $2.8 million on the "No on Z" campaign. Despite this, the measure passed with a narrow 52% majority. Industry representatives argue that the tax is illegal under state law and imposes an unfair burden on working families. 

Santa Cruz officials anticipate legal challenges but remain resolute. Vice Mayor Shebreh Kalantari-Johnson stated in a CalMatters report, "It's about democracy and standing up to special interests. It's about having the independence to generate revenue for our community." 

Public health advocates, including the American Heart Association, support the tax, citing its potential to reduce consumption of sugary drinks linked to health issues like obesity and type 2 diabetes. Nancy Brown, CEO of the American Heart Association, remarked, "Santa Cruz demonstrates that when presented with the facts about the dangers of sugary drinks, voters see through the soda industry's multi-million-dollar efforts to deceive them with misinformation."

The outcome in Santa Cruz may influence other municipalities considering similar measures, potentially reigniting efforts to implement soda taxes at the local level despite existing state-level restrictions.

3. IRS Workforce Shrinks Amid DOGE Cuts, Threatening Tax Revenue Collection

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Credit: HABesen/Getty Images

The Internal Revenue Service (IRS) has experienced a significant reduction in its workforce, with approximately 31% of its auditors departing due to layoffs and buyouts initiated by the Department of Government Efficiency (DOGE), led by Elon Musk. This downsizing, part of a broader federal workforce reduction strategy, has raised concerns about the IRS's capacity to enforce tax compliance effectively. 

The Treasury Inspector General for Tax Administration (TIGTA) reports that the IRS has lost about 3,600 revenue agents—the professionals responsible for conducting audits—since the beginning of 2025. These cuts are part of DOGE's plan to reduce the IRS workforce by up to 40% this year. 

Experts warn that this reduction in auditing staff could lead to a substantial decrease in tax revenue. The Yale Budget Lab estimates that diminished audit capabilities may result in a loss of approximately $323 billion in tax revenue over the next decade. 

Critics argue that the cuts could embolden tax evasion, particularly among high-income individuals and corporations. Emily DiVito, a senior adviser on economic policy at the Groundwork Collaborative, told CBS, "You lose the very staff trained to keep high-end taxpayers and corporate taxpayers in compliance." 

While DOGE claims these measures aim to eliminate waste and improve efficiency, the potential long-term impact on federal revenue collection and tax compliance remains a significant concern.

4. GOP Tax Plan Sparks Controversy with Proposal to Sell Public Lands in Nevada and Utah

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Credit: Carles Alonso Riaño/GettyImages

House Republicans have introduced a contentious provision in their sweeping tax cut package that would authorize the sale of hundreds of thousands of acres of federal public lands in Nevada and Utah. The measure, proposed by Reps. Mark Amodei (R-NV) and Celeste Maloy (R-UT), aims to generate revenue to offset the costs of the tax cuts. It includes up to 200,000 acres in Clark County, Nevada, and approximately 350,000 acres in Pershing County, Nevada, as well as parcels in Utah, some near Zion National Park, PBS reports.

Supporters argue that the land sales would facilitate economic development, affordable housing, and infrastructure projects in fast-growing regions. They contend that selling these lands at market value to local governments would provide much-needed funds and address housing shortages. House Natural Resources Committee spokesperson John Seibels described the initiative as a "community-driven effort" with broad local support.

However, the proposal has drawn sharp criticism from Democrats and environmental groups. Senator Catherine Cortez Masto (D-NV) condemned the plan as a "land grab to fund Republicans' billionaire giveaway tax bill," asserting that it undermines conservation efforts and public access to natural resources . Athan Manuel, director of the Sierra Club’s Lands Protection Program, warned that the sales could lead to increased drilling, mining, and logging with minimal oversight, stating, "The lands potentially for sale belong to all Americans. They shouldn’t be given away to pad corporate bottom lines."

The land sale provision is part of a broader legislative package that includes tax breaks, spending cuts, and increased funding for border security. The House Natural Resources Committee advanced the measure with a 26-17 vote, and House Speaker Mike Johnson aims to pass the full package by Memorial Day.

The proposal has also faced opposition from within the Republican Party. Representative Ryan Zinke (R-MT), a former Interior Secretary, expressed his disapproval, stating, "It's a no now. It will be a no later. It will be a no forever," noting the importance of maintaining federal management of public lands.

5. Minnesota Senate Advances Nation’s First Social Media Tax Targeting Data Collection

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Credit: Sean Pavone/GettyImages

The Minnesota Senate Tax Committee has approved a groundbreaking bill that would impose the nation's first excise tax on large social media companies based on their data collection from state residents. The proposal, spearheaded by Sen. Ann Rest (DFL–New Hope), aims to generate approximately $100 million annually by taxing platforms that collect consumer data from over 100,000 Minnesotans each month. 

Under the bill, social media companies would be taxed at graduated rates:

  • Over 100,000 but not more than 500,000 Minnesota consumers: $0.10 per month per consumer over 100,000.
  • Over 500,000 but not more than 1,000,000: $40,000 plus $0.25 per month per consumer over 500,000.
  • Over 1,000,000: $165,000 plus $0.50 per month per consumer over 1,000,000.

The tax would apply to approximately 15 social media companies and is slated to begin in January 2026.

Proponents argue that the tax targets wealthy corporations profiting from user data, with Sen. Rest stating, "You have to be really wealthy or a multi-national corporation or Elon Musk to complain about this bill." 

However, Minneapolis news network ABC 5 reports that some Republican lawmakers are concerned that the tax could ultimately burden consumers. Sen. Bill Weber (R-Luverne) remarked, "There is no tax, there is no fee we can place on business that ultimately will not be paid out of the pockets of our consumers."

The bill now moves to the full Senate, where Democrats hold a narrow majority. It must also be reconciled with a House tax bill that does not include the social media tax provision.

Which headline this week most interests you?

Feature Image Credit: Chip Somodevilla/Getty Images

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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