Exploring the contents of the 'grand, impressive legislation' for U.S. laborers
The One Big Beautiful Bill (OBBB), a tax cut and spending policy bill proposed by President Donald Trump, is poised to make significant changes to the nation's tax landscape. The bill, currently expected to pass in the House, aims to alter tax burdens across various income levels in notable ways.
One of the bill's key features is its retention and permanent extension of the individual tax brackets and increased standard deduction from the 2017 Tax Cuts and Jobs Act (TCJA), which helps maintain lower tax burdens for most taxpayers. Additionally, the bill expands the state and local tax (SALT) deduction cap from $10,000 to $40,000 for households earning under $500,000, providing relief for many middle- and upper-middle-income taxpayers.
Moreover, the OBBB introduces substantial tax breaks for seniors, allowing nearly 90% of Social Security beneficiaries to pay no federal income tax on their benefits, offering significant relief for older Americans.
However, the bill also tends to favour higher earners. By preventing scheduled tax increases under the expiring TCJA provisions, the bill avoids higher taxes on about 62% of taxpayers who would otherwise face increases. Notably, tax rates declined the most for those earning between $500,000 and $1 million per year after the 2017 reforms, a trend largely maintained by OBBB. The bill also includes provisions that cut business taxes, such as increased deductions for equipment and research costs, benefiting business owners and investors.
The OBBB is projected to promote economic growth with a 1.2% increase in long-run GDP, but it reduces federal revenue by about $4 trillion dynamically over the next decade, increasing deficits by nearly $3.8 trillion after accounting for higher interest costs. This tradeoff indicates that although the bill lowers tax burdens for many, especially middle- and higher-income groups, it contributes to higher federal debt, which can have long-term economic consequences.
The bill also includes provisions related to President Trump's campaign pledges for "no tax" on tips and overtime, with temporary provisions for these aspects lasting until 2028. The tipped income deduction in the bill is estimated to lower tax revenues by $32 billion, while the overtime provision is projected to reduce revenues by $90 billion.
In terms of individual tax burdens, workers in the $30,000 to $40,000 range would see a 9.5% cut in their federal tax burden, while those earning less than $15,000 would experience a 16.4% decline in their tax burden in the 2027 tax year. Across income levels, the OBBB Act would reduce federal taxes in 2027 by about $180 billion, or 3.8%.
The OBBB's provisions for tips and overtime are temporary, lasting until 2028. The reduction in federal taxes gets smaller as some temporary provisions expire, with a 1.9% reduction in 2029, then to 0.5% in 2031 and 2033, according to JCT analysis.
Senate Majority Leader John Thune and House Speaker Mike Johnson have helped guide the bill through their respective chambers in Congress. The expanded SALT deduction cap, the permanent extension of the TCJA's tax policies, and the significant tax breaks for seniors are some of the key features of the One Big Beautiful Bill that have garnered attention and debate in the ongoing discussions about the bill's potential impact on the American economy and taxpayers.
- The One Big Beautiful Bill (OBBB) aims to maintain lower tax burdens for most taxpayers by retaining and extending the individual tax brackets and standard deduction from the 2017 Tax Cuts and Jobs Act (TCJA).
- Notably, the OBBB provides relief for many middle- and upper-middle-income taxpayers by expanding the state and local tax (SALT) deduction cap from $10,000 to $40,000 for households earning under $500,000.
- However, the OBBB is projected to reduce federal revenue by about $4 trillion dynamically over the next decade, increasing deficits, which can have long-term economic consequences.
- The OBBB also includes temporary provisions related to President Trump's campaign pledges for "no tax" on tips and overtime, which are estimated to lower tax revenues by $32 billion for tipped income and $90 billion for overtime.
