Eleanor Finch
Former US President Donald Trump's tax plan, also known as the Tax Cuts and Jobs Act (TCJA), was enacted in 2017 and included several provisions aimed at reducing taxes for individuals and businesses. The plan included lowering tax rates, increasing the standard deduction, and introducing new credits and deductions. While the TCJA provided tax relief for some, it has been criticized for favoring the rich and failing to address the country's investment needs in areas such as healthcare, education, and social security. Trump's plan also proposed exempting certain types of income from taxes, such as tips, overtime pay, and Social Security benefits, which has led to a debate over the fairness and effectiveness of these policies. With the TCJA set to expire in 2025, policymakers and taxpayers are now considering the impact of potential changes and whether to extend or modify its provisions.
| Characteristics | Values |
|---|---|
| Marginal tax rates | 10%, 15%, 25%, 28%, 33%, 35%, 37%, 39.6% |
| Tax brackets | Adjusted annually for inflation |
| SALT deduction | $10,000 ($5,000 for married filing separately) |
| Child Tax Credit | $2,500 per qualifying child (House bill); $2,200 (Senate bill) |
| Deductions | Tips, overtime pay, interest paid on auto loans, charitable contributions |
| Corporate tax rate | 21% to 20% overall, 15% for companies manufacturing in America |
| Tariffs | New tariffs to offset tax cuts |
| Estate and gift tax exemption | Current exemption levels maintained |
| Qualified business income (QBI) deduction | 20% deduction maintained |
| Alternative minimum tax (AMT) | Current exemption levels maintained |
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What You'll Learn
Tax cuts for the rich
The 2017 Trump Tax Law, also known as the Tax Cuts and Jobs Act (TCJA), has been criticised for being skewed in favour of the rich. According to the Center on Budget and Policy Priorities, the tax law was "expensive and eroded the US revenue base". The US Congressional Budget Office (CBO) estimated that the 2017 law would cost the government $1.9 trillion over ten years.
The Tax Policy Center (TPC) estimates that in 2025, households with incomes in the top 1% will receive an average tax cut of more than $60,000, while households in the bottom 60% will receive an average tax cut of less than $500. The TPC also found that as a share of after-tax income, tax cuts for the top 1% and 5% are more than triple the value of tax cuts for the bottom 60%.
The Bush and Trump tax cuts have been criticised as irresponsible, given the US's underinvestment in areas such as healthcare, climate change, housing, and childcare. The US has higher child poverty rates than most other developed countries, despite being one of the richest nations in the world.
Trump has called for a permanent extension of the 2017 tax cuts, as well as additional policies such as eliminating taxes on tips, overtime pay, and Social Security benefits for retirees. Republicans argue that the tax cuts spur economic growth, with lower taxes generating additional economic activity.
The Senate Finance Committee's "One Big Beautiful Bill" (OBBB) aims to address some of these concerns. The bill includes permanence for major individual and corporate provisions of the TCJA and is estimated to increase long-run GDP, jobs, wages, and the capital stock. However, it is also projected to reduce federal tax revenue by $5 trillion between 2025 and 2034.
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Tax increases for the poor
The 2017 Trump Tax Law, also known as the Tax Cuts and Jobs Act (TCJA), has been criticised for benefiting high-income households far more than low- and middle-income households. While the tax cuts provided temporary relief to the middle class, they will ultimately be worse off in the long run. This is due to the tax cuts increasing the federal budget deficit, which will likely result in tax increases or spending cuts for middle-class households.
The Trump tax plan has also been criticised for being irresponsible and expensive, eroding the US revenue base. The Congressional Budget Office (CBO) estimated that the 2017 law would cost $1.9 trillion over ten years, and making the law's temporary individual income and estate tax cuts permanent would cost around $400 billion annually from 2027 onwards.
Rather than helping the middle class, the tax cuts have been described as "welfare for the wealthy". This is evidenced by the fact that a person making $217,000 or more annually would receive an average tax cut of $12,500 under the Senate bill. Meanwhile, millions of low-income Americans could experience significant financial losses under the domestic policy package advanced by Republicans. This is because the package threatens to strip health insurance, food stamps, and other aid from the poor, outweighing any benefits from slightly lower taxes.
Furthermore, the Trump tax plan proposes to pay for these tax cuts by cutting programs for the poor, including monthly nutrition allowances and food aid programs such as SNAP. Analysts have projected that work requirements could result in about 3.2 million people losing access to food stamps, and state officials may be forced to reduce or eliminate benefits for 1.3 million poor Americans.
Overall, while the Trump tax plan may provide some tax cuts for Americans, the gains are not equally distributed, and the poorest Americans are dealt the biggest blow.
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Exemptions for overtime pay and tips
Former President Donald Trump's tax plan, the One Big Beautiful Bill Act, includes a provision to eliminate federal income taxes on overtime pay for certain workers. This proposal, known as the "No Tax on Overtime Pay" plan, is intended to boost blue-collar incomes and reward extra effort. It is estimated that workers who qualify for this deduction could save up to $2,000 in federal taxes each year. However, critics argue that this policy would complicate the tax code, increase compliance and administrative costs, and reduce neutrality by favoring certain work arrangements.
Trump's tax plan also includes exemptions for tipped income, which is in line with his other proposed exemptions for overtime pay and Social Security benefits. While these exemptions aim to reduce taxes for workers in the service industry who receive tips, it is important to note that the deduction excludes tips received by high-income earners.
The 2017 Trump Tax Cuts, officially known as the Tax Cuts and Jobs Act (TCJA), reduced the average tax burden for taxpayers across the income spectrum. It also simplified the tax filing process through structural reforms. However, the individual portions of the TCJA are set to expire at the end of 2025, which could result in higher taxes for many taxpayers.
Trump has called for a permanent extension of the 2017 tax cuts and additional policies such as exempting tips, overtime pay, and Social Security benefits for retirees from taxes. He has also proposed higher taxes on US imports through new tariffs. These policies aim to put more money into the pockets of American workers, but it is important to consider the potential impact on the federal budget and the distribution of the tax burden.
Overall, Trump's tax plan, including the exemptions for overtime pay and tips, is designed to provide tax relief for working- and middle-class Americans. However, it is important to consider the potential trade-offs and the impact on different income groups.
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Child tax credit
The Child Tax Credit is a tax break for filers with children. Under the Trump administration, there have been several proposed changes to the Child Tax Credit.
The Rescue Plan's temporary expansion of the Child Tax Credit has been described as a successful policy that drove down child poverty rates in 2021. In 2024, a bipartisan House bill was passed to expand access to the Child Tax Credit and retroactively boost the refundable portion for 2023. However, the bill failed in the Senate.
The House Republican multi-trillion-dollar tax package includes a bigger Child Tax Credit. If enacted, the bill would make permanent the maximum $2,000 credit passed via Trump's 2017 tax cuts and raise the highest value to $2,500 from 2025 through 2028. The Senate bill, on the other hand, sets the credit at $2,200 for 2025 and 2026, with indexing starting in 2026. The Senate bill also includes a requirement for valid Social Security numbers for the taxpayer, child, and spouse (if filing jointly), which would mostly exclude non-citizen parents from claiming the credit on behalf of a citizen child.
The Child Tax Credit is not the only tax credit that has been proposed or modified under the Trump administration. There is also a proposal for a 100% tax credit for donations to scholarship-granting organizations, with taxpayers being fully reimbursed for their donations when they file their taxes. Additionally, the Trump tax plan introduces a "bonus additional amount," increasing the standard deduction for seniors by $4,000 from 2025 through 2028.
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Corporate tax rate reduction
The Tax Cuts and Jobs Act (TCJA) was a major overhaul of the US tax code, signed into law by President Donald Trump in 2018. The Act cut the corporate tax rate to 21%, benefiting shareholders, who tend to be higher earners. The TCJA also impacted individuals based on their income level, filing status, and deductions.
The corporate tax cut was intended to boost economic growth and yield broadly shared benefits. Trump's Council of Economic Advisers claimed that the rate cut would lead to a $4,000 boost in household income. However, research has failed to find evidence that the gains from the rate cut trickled down to most workers.
The TCJA's individual tax cuts are set to expire at the end of 2025, after which many Americans will face tax increases. The Tax Foundation has analysed ways to extend the 2017 tax cuts while remaining revenue-neutral and not substantially changing the distribution of the tax burden.
Critics argue that the 2017 Trump tax law was skewed towards the rich, eroded the US revenue base, and failed to deliver promised economic benefits. The Congressional Budget Office (CBO) estimated that the law would cost $1.9 trillion over ten years, severely impacting the country's revenue base.
In summary, while the TCJA's corporate tax rate reduction aimed to boost economic growth, it has been criticised for disproportionately benefiting high-income households and contributing to the nation's revenue shortfall. As the Act's individual provisions expire in 2025, policymakers face the challenge of designing a tax code that raises more revenue and supports investments in critical areas such as children, workers, and healthcare.
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Frequently asked questions
The 2017 Trump Tax Cuts, known as the Tax Cuts and Jobs Act (TCJA), reduced average tax burdens for taxpayers across the income spectrum. It also simplified the tax filing process, boosted capital investment, and improved the international tax system.
Trump's tax plan includes maintaining lower individual income tax rates, keeping larger standard deductions, and continuing the expanded child tax credit. It also preserves the 20% deduction for QBI and current exemption levels under the alternative minimum tax (AMT).
Trump's tax plan aims to provide tax relief to a broad range of individuals, including working families, small business owners, and high-net-worth households. However, taxpayers who do not qualify for certain deductions or credits may see fewer advantages. Overall, there will be a mix of tax increases and decreases for different income groups.
The House bill proposes increasing the credit to $2,500 per qualifying child from 2025 to 2028, then returning it to $2,000 with inflation indexing. The Senate bill sets the credit at $2,200 for 2025 and 2026, with indexing starting in 2026.
Critics argue that Trump's tax plan is skewed towards the rich and expensive, eroding the US revenue base. The combination of tax cuts and proposed tariffs may offset the benefits of the tax cuts, impacting economic growth. There are also concerns about the reduction in federal funding for programs supporting low-income households.
