Since extending the tax cuts in 2017, President Donald Trump hasn’t really pushed for major changes to U.S. tax laws. Now, Congressional Republicans are striving to align Trump’s vision with tangible action.
The current state of tax bills
Here’s an update on the status of the significant tax bills navigating through Congress.
- Republicans are crafting a bill that would extend fundamental elements of the 2017 Tax Cuts and Jobs Act (TCJA). Highlights include an increased child tax credit and lowered income tax rates, which are due to expire at the end of 2025. More information on Trump and the TCJA’s expiration can be found.
- The finalized bill may introduce new tax credits that Trump promised during his campaign, such as removing taxes on tips, overtime pay, and Social Security benefits.
- Additionally, the bill might raise taxes for the wealthiest Americans. Trump has requested House Speaker Mike Johnson to incorporate a new tax rate of 39.6% for high earners. Reuters Report
| Year | Top Income Tax Rate | Single Filer | Joint Filers |
|---|---|---|---|
| Proposed by Trump in 2026 | 39.6% | Over $2.5 million | Over $5 million |
| Current in 2025 | 37% | $626,350+ | $751,600+ |
| 2017 (before TCJA) | 39.6% | $418,400+ | $470,700+ |
- The House version of the bill includes a range of other provisions, such as substantial funding for immigration enforcement, changes to federal student loan programs, and cuts to pensions for federal workers, alongside adjustments to taxes linked to the former administration’s Inflation Reduction Act.
- Changes to state and local tax (SALT) deductions may also be included, allowing taxpayers to deduct property taxes and state income or sales taxes. The existing cap of $10,000 on this deduction, established by the TCJA, has reduced significant tax benefits for wealthy homeowners. Some lawmakers are advocating for raising or completely eliminating this cap.
- To cover the revenue losses, House Republicans are looking at a $1.5 trillion reduction in spending, which could lead to significant cuts in Medicaid and food assistance programs. However, this approach might face resistance from moderate Republicans. A recent budget framework passed by the House called for a $4.5 trillion tax credit cut.
- As of now, around 12 House committees are working on different aspects of the bill. House Speaker Mike Johnson aims to have a vote on the bill by a specific anniversary, but reaching an agreement by that time remains uncertain. Once the House approves its version of the bill, it will move to the Senate. Trump hopes for the final legislation to be in place by July 4.
While many provisions of the TCJA could potentially be extended under a Republican majority, there are divergences on funding these tax cuts, making the passage and reconciliation of the House bill with the Senate version a challenging task.
Experts caution that the expenses associated with the final bill could severely affect the national debt and federal deficits. Just extending the TCJA is projected to add $4.5 trillion to the national debt over the next ten years, according to a report from a non-partisan research organization.
How tax laws will change
The exact details of the finalized tax law are still unclear, but there’s significant potential for some form of overhaul this year.
Significant alterations under the TCJA included an increase in the standard deduction and an uplift in the Child Tax Credit from $1,000 to $2,000. Moreover, the top tax rate for high earners decreased from 39.6% to 37%, along with the introduction of a 20% deduction for some business income.
While certain aspects of the TCJA are permanent, others will expire at the end of 2025. Lawmakers can introduce necessary tax provisions within the new comprehensive tax bill.
Consequently, lawmakers might adjust other tax laws while also considering extending the TCJA’s provisions that essentially maintain the existing tax system for U.S. taxpayers.
Trump has made various promises regarding tax credits during his campaign and his tenure as president.
- No taxes for individuals earning under $150,000.
- Elimination of the current $10,000 cap on SALT deductions.
- No taxes on income from tips, overtime, and Social Security benefits for retirees.
- A proposed tax credit for interest on loans for American-made vehicles.
Tax benefits for small and medium-sized businesses
The TCJA lowered corporate tax rates from a high of 35% to a flat 21%. Since these changes are set to be permanent, they are not part of the expiring TCJA components, although amendments may still be introduced.
The TCJA also offered substantial tax credits to pass-through businesses like partnerships and S corporations. If these businesses meet certain income criteria, they may deduct 20% of their qualified business income. However, the regulations are expected to expire by the end of 2025.
There is bipartisan support to extend the Qualified Business Income (QBI) deduction, but its future remains uncertain.
Additionally, owners of pass-through companies report their earnings on personal tax returns and are taxed at individual rates, potentially impacting their benefits from the TCJA.
State and Local Tax (SALT) Cap
To help fund the costs associated with the TCJA, lawmakers eliminated personal exemptions, which allowed taxpayers to reduce their taxable income. The $10,000 deduction for SALT taxes limits the amounts taxpayers can claim. These deductions allow for the inclusion of state and local income or sales taxes, in addition to property taxes.
During his campaign, Trump expressed a desire to remove the SALT cap. Meanwhile, some lawmakers are considering options like raising the cap to $20,000 or even doubling the existing limit for married couples filing jointly.
Yet, lifting or raising this cap raises complicated questions about the funding of other TCJA elements.
“Removing the SALT restrictions would take away some of the revenue needed to support other reforms,” remarked Jan Lewis, a CPA and partner at a local advisory firm.
Other proposed tax reductions
Trump also articulated ambitions to eliminate taxes on certain income types during his campaign.
- No tax on Social Security benefits: Trump argued that retirees should not be taxed on these benefits, especially if they have no additional income sources.
- No tax on overtime pay: Trump suggested eliminating taxes on overtime and tips, though specifics about this proposal remain scarce.
- No tax on tips: A proposal reintroduced by a senator aims to provide a $25,000 tax credit for tip income.
- Tax deduction on car loan interest: Details here are limited, but Trump indicated support for this type of allowance.
- Tax cuts for expatriates: Current regulations impose U.S. income taxes on citizens abroad, but Trump has indicated a desire to cut these taxes.
Customs and External Revenue Services
Since taking office, Trump has implemented various tariffs, including 25% on certain goods from China and other tariffs on imports from Venezuela, Canada, and Mexico.
In January, he announced the establishment of a department dedicated to generating income from customs duties and other foreign sources, which typically see U.S. companies paying import fees.
Research indicates that consumers generally absorb the costs of these tariffs.
“We face accusations regarding our efforts to ensure fair trade practices, especially concerning customs duties,” said a spokesperson.
In addition to impacting small businesses, customers purchasing these goods may encounter financial strains due to these tariffs.
