President Trump has once again defied the odds and the political establishment in Washington. On July 4th, he signed what he called the “big and beautiful” budget bill into law, marking a notable win for his second-term agenda and reinforcing his commitment to prioritizing the middle class in America.
The tax and spending measures included in this new law are expected to bring significant and lasting changes aimed at supporting working families, promoting productivity, and restoring rational economic priorities in Washington. Here are five ways this legislation seeks to benefit the middle class, laying the groundwork for greater prosperity for millions of Americans.
1. Extension of tax cuts
At the core of the new Tax and Expense Act is the continuation of personal income tax cuts established by the Tax Cuts and Jobs Act, which Trump signed into law back in 2017.
The 2017 Tax Cuts Act delivered one of the most substantial tax reductions to middle-income Americans in history. Recently, a new study examined the effects of these tax cuts, showing that those earning less than $75,000 benefitted the most in terms of savings.
This research revealed that over 50 million middle-income taxpayers likely saved between $6,322 and $13,494, thanks to the tax cuts enacted in 2017.
These personal income tax cuts were originally set to expire at the end of this year. If the extension hadn’t been included in the new law, it would have resulted in a major tax increase for almost all Americans, particularly the middle class, increasing their tax burden significantly over the next five years.
Fortunately, that didn’t occur. The recent spending law has made these tax cuts permanent, which provides essential stability and prevents tax increases for many families.
2. Expanded child tax credits
The new tax laws have also made child tax credits permanent, increasing the amount families can claim. The revised Child Tax Credit offers a $2,200 reduction in tax bills for each qualifying child, which is a $200 increase per child from this year. Furthermore, these credits will rise in line with inflation in the years to come.
Middle and working-class families stand to benefit the most from these credits, with upper-income earners phased out of eligibility.
This new child tax credit can save families with children a minimum of $4,400 annually, totaling $22,000 over the next five years. Had the previous tax credit expired, the amount would have dropped to just $1,000, rendering many families ineligible.
3. Reductions on taxes for tips and overtime
In line with two of Trump’s prominent campaign promises, the “big and beautiful” law significantly lowered taxes on tips and overtime, especially benefiting middle-income and working-class individuals.
The new legislation allows workers to deduct tips of up to $25,000 from their income tax bills. The thresholds have decreased for singles earning over $150,000 and couples making over $300,000, with the overtime salary deduction placed at $12,500.
Depending on their income, these provisions could save families thousands each year, though they are set to expire in 2029 due to budgetary rules.
4. Introduction of the Trump Account
One of the lesser-known yet impactful elements of the new tax and expenditure law is the introduction of a program called the Trump Account.
This account allows parents to save $5,000 annually for their children, with contributions being tax-deductible. Essentially, parents are leveraging tax savings on the money they contribute.
Funds within the Trump Account are invested in US Stock Index Funds, giving families a relatively secure way to appreciate their investments over the long haul. Withdrawals are restricted until the child turns 18, at which point the funds can be used for qualifying expenses like buying a home, launching a small business, or covering educational costs. They will have to pay income tax on any withdrawals, although many young adults typically have lower incomes.
Employers can also contribute up to $2,500 a year to their employees’ Trump accounts, which won’t be counted as taxable income.
The law introduces a pilot program that will automatically open accounts for children born between January 1, 2025, and December 31, 2028, with a $1,000 seed deposit.
If utilized wisely, these accounts can serve as a significant advantage for middle-income families in supporting their children’s futures. Based on an average annual return of 10%, families who set aside just $200 monthly may accumulate around $120,000 by the time their child is 18—an ample amount for various significant expenses.
5. Tax credits for seniors
The new law also introduces tax deductions of up to $6,000 for filers aged 65 and above, with income caps set at $75,000 (or under $150,000 for couples).
With the increased standard deduction included, this $6,000 deduction for seniors effectively eliminates taxes on Social Security benefits for many filers.
The Social Security Administration expressed gratitude for these changes, noting that “nearly 90% of Social Security beneficiaries do not pay federal income tax on benefits.”
