President Trump’s domestic agenda bill includes military and immigration provisions, major cuts to national healthcare, and various incentives for industries, with its core focus remaining on healthcare.
The Congressional Budget Office and the Joint Tax Committee have forecasted that the Senate version of the bill could result in a $500 billion reduction over ten years, even without the significant tax cuts included in it.
These cuts are estimated to total around $3.3 trillion, which represents roughly 9.1% of the current U.S. debt of $36 trillion. This figure doesn’t consider the additional interest costs associated with the obligations.
Expected revenue from tariffs may cover a large portion of these costs—around $2.5 trillion—but still falls short of the invoice’s total expenses, excluding macroeconomic and debt service costs.
Here’s a closer look at the major tax provisions highlighted in the bill.
Individual Regulations
The bill aims to maintain and make permanent the lower marginal tax rates, higher standard deductions, and individual exemptions established in the 2017 tax law.
The standard deduction is set at $750 for single filers and $1,500 for couples, with adjustments for inflation only applying to the two lower tax brackets.
The child tax credit will be raised to $2,200 from $2,000, incorporating inflation adjustments, limited to taxpayers who have Social Security numbers.
The exemption for the alternative minimum tax will be made permanent, though it will be implemented more quickly than previously expected.
The inheritance and gift tax exemption is now increased to $15 million for individuals and $30 million for couples, locked in with inflation considerations.
The cap on the state and local tax (Salt) deduction, a contentious issue that had been debated for a while, has been raised to $40,000 annually until 2029 for those earning less than $500,000. Beginning in 2030, the cap will revert to $10,000.
“There’s a strong possibility future legislatures will work to expand the higher deductions,” a Beacon Policy Advisor stated in their analysis.
Additionally, the bill will eliminate the IRS Direct Online Tax Return Program established in 2022.
Additional Individual Cuts
During his campaign, Trump promised several individual tax cuts aimed at working-class citizens, most of which have made it into the final legislation.
Wages from tips can be deducted up to $25,000, while overtime wages are eligible for deductions up to $12,500, with phase-outs starting at a single filer’s income of $150,000.
Seniors will receive an additional deduction of up to $6,000, over and above the standard deduction.
Deductions for auto loan payments can go up to $10,000 and can be extended for vehicles costing more than $100,000, provided they are manufactured domestically.
These deductions are set to last through 2028, which could be politically significant in future elections, according to lawmakers.
The bill also introduces the “Trump Account,” where the government will fund a $1,000 savings account for children born between 2024 and 2028.
Domestic Business Tax Reduction
One of the key elements in Trump’s 2017 tax cuts was lowering the corporate tax rate from 35% to 21%, and this bill preserves that reduction.
The changes from the tax law led to some of the largest companies, including those in the Fortune 500, experiencing profit margins that diminished from 22% to 12.8%.
The bill offers a 20% deduction on pass-through business income, which encompasses numerous U.S. companies, including LLCs and partnerships.
Additionally, it reinstates prepayment depreciation deductions, introduces new standards for interest deductions, and addresses research and development costs—measures that business lobbyists have long sought since their previous expiration.
The prepayment depreciation deduction will take effect retroactively to the beginning of Trump’s current term.
Incentives for factory construction, semiconductor manufacturing, opportunity zones, and carbon sequestration will also be included.
Changes to International Business Tax
While specifics are limited, it appears the U.S. has struck a deal with seven large economies allowing them to sidestep the global minimum tax agreement established by the Organization for Economic Co-operation and Development (OECD).
Both the U.S. and OECD have suggested a collaborative arrangement that keeps the OECD’s international pillar two structure intact, as Republicans have expressed concern over it. However, the U.S. will also maintain its own international tax framework that includes systems like Gilti, FDII, and Beat.
This agreement permits the exclusion of international tax retaliation, known as Section 899, from the bill’s final version, which will ease concerns for U.S. international investors.
Some tax experts highlight the distinctness of the OECD and U.S. frameworks, while others argue it’s simply a matter of choosing different paths.
“The structures aren’t entirely comparable,” stated David Rosenbloom, director of the International Tax Program at New York University. He expressed surprise that the U.S. opted out of the agreement when it was expected to be under discussion within the OECD framework.
“If we’re out, we’re out,” he added. “I don’t see why other nations would need our perspective on their tax matters.”
Other Tax Changes
The bill proposes several other tax changes, such as expanding low-income housing tax credits, removing travel expenses, extending mortgage interest credit limits, and enhancing dependent care programs.
There’s also a tax credit for private schools that has faced controversy; this credit would reimburse the initial $1,700 contributed towards a private school tuition voucher.
The Institute for Taxation and Economic Policy described the credit as “unprecedented” and cautioned that it could lead to unforeseen costs associated with this initiative.
“There’s no cap on the overall tax credits, allowing for potentially boundless financial implications,” the group noted in their analysis.
