Insights on Tax Reductions Offered by Trump's Significant Legislation
Trump's "big, beautiful bill" draft is a tax reform proposal that aims to make permanent some expiring tax cuts and adjustments for both individuals and businesses. The bill is currently in its draft form, with the following key points:
Key Provisions
- Permanent Income Tax Rates: The existing income tax rates and brackets will be made permanent, starting in 2026. These tax rates reflect a reduction from previous years thanks to the 2017 Tax Cuts and Jobs Act.
- Capital Gains Adjustments: The same capital gains rates will remain, but brackets will be tweaked.
- Standard Deduction Boost: The doubled standard deduction will become permanent, with an additional temporary increase of $1,500 for the first year and $1,000 for subsequent years. However, this increase will add an estimated $1.3 trillion to the deficit, according to the JCT.
- Additional Standard Deduction for Seniors: Beginning in 2025, seniors will be eligible to claim a deduction of $4,000, expiring in 2028. This deduction will apply to taxpayers who itemize as well as those taking the standard deduction, and phases out with income over $150,000 for joint filers and $75,000 for all other taxpayers. This appears to be a concession to Trump's pledge to eliminate federal taxes on Social Security, which didn't make it into the bill.
- Repeal of Personal Exemptions: Personal exemptions will be permanently repealed in this proposal.
- Senate Mortgage Cap Increase: The lower mortgage cap, set to expire in 2025, will be made permanent in this bill.
- State and Local Tax Adjustments: The SALT cap on deductions for state and local taxes will be extended past its planned expiration at the end of the year. The cap will be boosted to $30,000 for joint filers and $15,000 for individuals, but this higher cap will only be accessible to taxpayers with a modified adjusted gross income (MAGI) of up to $400,000. Lower caps will apply to higher income taxpayers.
- Other Changes: The draft bill includes adjustments to deductions such as casualty and theft losses, miscellaneous itemized deductions, and Pease limitations. Additionally, federal estate taxes, alternative minimum tax (AMT), child tax credit, and student loan provisions will undergo changes or extensions.
Impact
The total cost of the bill is estimated at $4.9 trillion, with cost offsets still under consideration. The proposed tax provisions are projected to reduce federal revenues by around $4.1 trillion between 2025 and 2034.
The Trump tax bill, a proposed tax reform, seeks to make some tax cuts, including those from the Tax Cuts and Jobs Act of 2017, permanent for both individuals and businesses. In terms of finance and business, the bill includes amendments such as the permanence of the existing income tax rates, adjustments to capital gains, and the temporary increase of the standard deduction, which may impact the overall tax rate cuts proposed by the GOP.
