Overview of Proposed Changes to U.S. Tax Law
President Donald Trump’s vision for a revamped U.S. tax code has been clear since he signed the Tax Cuts and Jobs Act (TCJA) in 2017. As Congress works to realize his agenda, key changes to tax laws are on the horizon, including the extension of tax cuts and new provisions aimed at various income brackets.
Current Status of the Tax Bill
The current tax legislation under consideration seeks to extend significant components of the TCJA, such as an expanded child tax credit and reduced income tax rates, which are set to expire at the end of 2025. Additionally, the proposal might introduce new tax breaks, as promised by Trump during his campaign.
One notable aspect is the potential hike in taxes for high-income Americans. House Speaker Mike Johnson has been asked to include a 39.6% tax rate for affluent taxpayers, a throwback to pre-TCJA levels. The following chart outlines the current and proposed tax rates:
| Year | Top Income Tax Rate | Single Filer | Married Filing Jointly |
|---|---|---|---|
| Proposed by Trump for 2026 | 39.6% | $2.5 million+ | $5 million+ |
| Current for 2025 | 37% | $626,350+ | $751,600+ |
| 2017 (before TCJA) | 39.6% | $418,400+ | $470,700+ |
Potential Changes in Tax Law
Amidst bipartisan discussions, the bill may also modify or eliminate the state and local tax (SALT) deduction. Many lawmakers are advocating for lifting the current $10,000 cap on this crucial deduction, which affects homeowners and taxpayers in high-tax states. Any significant changes to SALT could alter how tax revenue is allocated, affecting the funding for other areas.
Impact on Small Businesses
The TCJA’s benefits for small businesses, particularly the pass-through business tax deduction, are also at risk of expiration in 2025. Support exists for extending this 20% deduction on qualified business income, a crucial incentive for small business owners. Discussions are ongoing, and the future of this deduction remains uncertain.
How Proposed Tax Breaks Will Affect You
Trump has proposed various tax breaks targeting different income groups. Among these are the elimination of taxes for individuals earning less than $150,000, the removal of tax on Social Security benefits, and a new deduction for car loan interest on American-made vehicles. If passed, these changes could significantly impact taxpayers across multiple demographics.
Concerns Over Debt and Deficit
Experts are raising alarms about the proposed tax changes’ potential consequences on national debt and federal deficits. Continuation of the TCJA provisions could lead to an estimated $4.5 trillion increase in debt over the next decade. This figure highlights the balancing act lawmakers must undertake between tax cuts and managing federal expenditures.
Tariffs and External Revenue Service
Trump’s administration has also introduced significant tariffs, affecting various goods imported into the U.S. These tariffs could have widespread repercussions for small businesses and consumers alike, as costs may trickle down to those purchasing goods subject to these tariffs. Moreover, plans are in motion for creating an External Revenue Service focused on tariff collection, expanding the government’s revenue strategy.
As compelling discussions continue around these proposed tax reforms, the American public will need to stay informed about how these changes will affect their financial situations moving forward.
