The GOP’s “Big Beauty Building” is heading to President Trump’s desk for signing this Friday, bringing with it some notable tax credits aimed at wealthier Americans, albeit accompanied by cuts to social welfare programs.
This legislation proposes various new tax cuts, including a “senior credit” designed to exempt individuals over 65 from Social Security taxes, allowing them to avoid taxes on tips up to $25,000. Additionally, it would make the tax cuts from Trump’s 2017 term permanent.
However, analyses suggest that the benefits for low-income earners might be offset by the downside of reduced support for healthcare and food assistance programs.
According to an analysis by the Tax Policy Center, around 85% of households are expected to receive tax cuts by 2026. Many changes in the bill are permanent, but some, like the new deductions for seniors, are temporary. By 2030, it’s estimated that only about 70% of households will still benefit from these tax credits.
The center also reports that nearly 60% of the tax benefits will go to the wealthiest quintile of earners (those making over $217,000), who will enjoy an average tax reduction of $12,500.
Other estimates examining the tax changes suggest that while the benefits across income brackets will vary, there’s a consensus that these credits typically aid in moving up the income scale.
Here’s a breakdown of how the bill will impact various income groups:
High Income (over $217,000)
For households earning between $217,000 and $318,000, there will likely be a 2.6% increase in after-tax income, along with an average credit of around $5,400. Those in the 90th to 95th percentile, earning between $318,000 and $460,000, can expect a cut of about $8,900 or a 3.1% increase in after-tax income.
For individuals making between $460,000 and $1.1 million, the tax break could reach $21,000, translating to a 4.4% rise in after-tax income. In contrast, the top 1% and 0.1% (those making over $1.1 million or $5 million, respectively) will experience increases of about 3.5% and 3.2% in their after-tax income.
Middle-income earners ($50,000-200,000)
The Tax Policy Center estimates indicate that tax cuts for middle-income earners are relatively minor.
Households with earnings between $100,000 and $200,000 will see an approximate 2.5% rise in post-tax income, receiving about $3,000 in tax credits. For those in the $75,000 to $100,000 bracket, the reduction is similar at around $1,700 or about 2.3% of income. Meanwhile, those making between $50,000 and $75,000 will receive a tax cut of approximately $1,000.
Low-income individuals (under $50,000)
For those earning between $40,000 and $50,000, the reduction would be about $630, which translates to 1.9% and 1.5% increases in after-tax income, respectively.
However, individuals making less than $34,600 will see their taxes rise by roughly $150, resulting in only a 0.8% increase in their after-tax income. The potential benefits of tax credits for low-income Americans may be overshadowed by significant cuts to Medicaid and food assistance.
It’s estimated that federal Medicaid spending could fall by about $1 trillion, affecting around 12 million low-income Americans who might lose their health insurance by 2034, according to the Congressional Budget Office.
Furthermore, the bill introduces work requirements for Medicaid and potentially eliminates many benefits from the SNAP program, commonly known as food stamps.
New tax reductions
Most of the tax credits in the bill are set to commence in 2025, with some becoming permanent. Notably, the child tax credit has been raised to $2,200, and the standard credit has gone up by $750.
However, many significant tax cuts, including a new $6,000 deduction for those over 65, will expire by 2028. Additionally, a $25,000 deduction aimed at eliminating tip taxes will only last for three years, along with an extra $12,500 deduction aimed at reducing overtime taxes.
Changes in the federal deductions for state and local taxes, known as SALT caps, will rise to $40,000, up from the previous cap of $10,000, which was a significant sticking point during initial bill negotiations.
While these cuts are considerable, projections on their economic impact vary. The Congressional Budget Office estimates the bill could add around $3.4 trillion in debt over the next decade, with others suggesting figures reaching as high as $6 trillion.
Many Republicans, typically cautious about fiscal responsibility, opposed aspects of the bill due to concerns over national debt and its potential impact on future generations, yet they ultimately voted in favor.
