President Trump’s new tax proposal builds on the foundation laid in 2017, aiming to extend many of those cuts that are set to expire at year’s end. This continuation ensures that paycheck deductions for most Americans remain unchanged.
The bill also introduces a series of new tax reductions. Though many of these are designed to sunset in a few years, they are intended to deliver short-term financial relief and economic stimulus.
Personal income tax rates will stay the same
One major holdover from the 2017 law is the reduced personal income tax rates. These brackets — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — will be preserved under the current legislation. According to the Joint Committee on Taxation (JCT), keeping these rates will cost the federal government $2.2 trillion in lost revenue by 2034. President Trump had briefly considered reinstating the 39.6% top rate but has since dismissed the idea.
If the cuts were allowed to expire, tax brackets would shift to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Only the 10% and 35% rates were untouched by the 2017 tax changes.
The higher standard deduction and cancellation of personal exemptions will remain
Another key component is the continued use of the nearly doubled standard deduction, now temporarily raised by $1,000 for single filers and $2,000 for couples over a four-year span. With no return of personal exemptions, the streamlined filing process remains intact.
For 2024, the standard deduction stands at $14,600 for individuals and $29,200 for married couples. While the expanded deduction is expected to reduce revenues by $1.3 trillion over the next decade, removing personal exemptions is estimated to increase federal revenue by $1.9 trillion — creating a net fiscal gain between the two provisions.
No taxes on tips or overtime pay
A new temporary measure allows workers to avoid taxes on tips and overtime pay, though it is scheduled to expire in 2028. While this may benefit some workers, those in the restaurant industry worry it might discourage customers from tipping.
“I’m afraid that people are going to want to tip less with that income not being taxed,” said a New York City bartender.
He also raised equity concerns within the workplace: “In the industry, the bigger concern is, why would the front-of-house not pay taxes when the back-of-house will still be paying taxes because they don’t get tips?”
Tax professionals caution that these changes could increase the burden on both employers and employees when it comes to compliance. Depending on how the IRS implements the policy, new forms and reporting rules may be necessary.
An additional tax break for seniors
To aid older Americans, the bill includes an additional $4,000 deduction for seniors who fall below a specific income level. This new deduction adds to the $15,000 standard deduction and the already existing $2,000 deduction for senior filers.
While on the campaign trail, President Trump vowed to eliminate taxes on Social Security benefits — which are taxed again after being funded by payroll taxes. Though the current measure does not eliminate those taxes, it functions as a workaround, since major changes to entitlement programs are barred under the budget reconciliation process Republicans are using to pass this bill.
The grand finale of the SALT cap
The provision generating the most intense internal debate is the state and local tax (SALT) deduction cap. Early proposals, like raising the cap to $30,000, were rejected by lawmakers from high-tax states. A new option introduced Tuesday suggests increasing the cap to $40,000 for those earning $500,000 or less, with that threshold rising 1% annually over the next decade.
No matter the outcome, this will be one of the costliest parts of the bill. The Joint Committee on Taxation estimates that lifting the cap could cost as much as $1 trillion over ten years.
The SALT cap also affects other areas of the tax code, including the extended higher standard deduction and the effective repeal of the alternative minimum tax (AMT), which itself carries a $1.4 trillion price tag.
“Even if you live in a place like New York, the combination of repealing the AMT and the $10,000 SALT cap was actually still positive for you. You were better off with the SALT cap because you lost the AMT than you would have been if the law hadn’t happened at all,” Tax Policy Center senior fellow Howard Gleckman told The Hill.
“It was actually a good deal for people,” Gleckman said.
{Matzav.com}