Budget Reconciliation: Tracking the 2025 Trump Tax Cuts

Details

• On May 22, the House Rules Committee amended elements of the House Ways and Means legislative text related to SALT, IRA green energy credits, international taxes, the alternative minimum tax, and itemization deductions. The broader bill was passed out of the House of Representatives.
• On May 12, the House Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is one of 29 U.S. House of Representative committees and is the chief tax-writing committee in the U.S. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. released pre-mark legislative text to extend the expiring 2017 tax cuts and provide additional changes to the US tax system ahead of a markup hearing on May 13.
• The legislative text introduced by the Ways and Means Committee cuts taxes by less than the budget resolution instructions, implying either that spending reductions have fallen short of the target or that lawmakers are leaving room for further negotiations over certain tax items.

Analysis

• Our preliminary analysis finds the tax provisions included in the House reconciliation bill would increase long-run GDP by 0.8 percent, increase hours worked by 983,000 jobs, increase American incomes as measured by GNP by 0.8 percent, increase wages by less than 0.05 percent, and increase the capital stock by 0.2 percent.
• We estimate the tax provisions and spending changes would increase the budget deficit by $2.6 trillion between 2025 and 2034, measured on a conventional basis. On a dynamic basis, incorporating the projected increase in long-run GDP of 0.8 percent, the budget deficit increases by $1.7 trillion over the 10-year budget window.
• Overall, the bill would prevent tax increases on 62 percent of taxpayers that would occur if the TCJA expired as scheduled. However, by introducing narrowly targeted new provisions and sunsetting the most pro-growth provisions, like bonus depreciation and research and development (R&D) expensing, it leaves economic growth on the table and complicates the structure of the tax code.

House Big, Beautiful Bill Act Tax Plan: Topline Preliminary Estimates

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Related Resources:

• A More Generous SALT Deduction Cap in the Big, Beautiful Bill Would Cost Revenue and Primarily Benefit High Earners See more
• House Tax Package Could Double Economic Growth Impact by Prioritizing Permanence for TCJA Business Provisions See more
• The Good, the Bad, and the Ugly in the One, Big, Beautiful Bill See more
• House “One Big Beautiful Bill” Riddled with Temporary Tax Policy See more
• House GOP’s Approach to the IRA Clean Energy Tax Credits: Five Things to Know See more
• Current Trump Tariffs Threaten to Offset Benefits of Promised Tax Cuts See more
• The One Big Beautiful Bill, Explained Listen now
• State Implications of the One, Big, Beautiful Bill See more
• SALT Cap Workarounds for Some Pass-Through Entities Are Threatened by One, Big, Beautiful Bill See more
• What Are the Goals of Retaliatory Tax Policies? See more
• Three Corporate Tax Hikes That Would Undermine TCJA’s Improvements to Competitiveness See more
• Raising the Top Income Tax Rate Would Offset Economic Benefits of TCJA Individual Permanence See more
• Growth Should Be a Key Consideration if Corporate SALT Is Limited See more

Details to come

Details

• On the campaign trail, and reiterated in his March 4 joint address to Congress, President Trump called for permanence for the 2017 tax law, restoring the state and local tax (SALT) deduction, reducing the corporate tax rate for domestic production, exempting various types of income from the income tax, repealing green energy tax credits, and imposing steep new tariffs.

Analysis

• Some of Trump’s tax proposals are well-designed and would be efficient ways to promote long-run economic growth, such as permanent expensing for machinery, equipment, and research and development (R&D).
• Some of his tax proposals are poorly designed and would worsen the structure of the tax code while only creating a muted impact on long-run economic growth, such as the exemptions for tips and Social Security income.
• Worse yet, Trump’s reliance on import tariffs to offset the cost of tax cuts come with major downsides. Tariffs are a particularly distortive way to raise revenue, especially as they invite foreign retaliation. We estimate Trump’s proposed tariffs and partial retaliation from all trading partners would together offset more than two-thirds of the long-run economic benefit of his proposed tax cuts.
• During the campaign, we estimated Trump’s tax proposals would increase long-run GDP by 0.8 percent, the capital stock by 1.7 percent, wages by 0.8 percent, and employment by 597,000 full-time equivalent jobs. We also estimated the proposals would increase the 10-year budget deficit by $3 trillion conventionally and $2.5 trillion dynamically.

Trump 2024 Campaign Tax Plan: Topline Preliminary Estimates

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Details

• President Trump has imposed new tariffs on nearly all US trading partners as well as on specific products, affecting more than 70 percent of US imports. While the tariffs are not formally or officially part of the reconciliation context, they will have economic and revenue effects to consider alongside the tax package Congress produces.

Analysis

• The tariffs imposed and scheduled to take effect as of April 2025 would increase federal tax revenue by $2.1 trillion from 2025 through 2034 on a conventional basis and decrease after-tax incomes by 1.2 percent on average.
• Before accounting for foreign retaliation, Tax Foundation estimates the tariffs will reduce long-run US output by 0.7 percent.

Trumps Tariffs: Topline Preliminary Estimates

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Details

• Beginning January 1, 2026, most provisions of the 2017 Tax Cuts and Jobs Act (TCJA) will expire. Additionally, several business provisions have already expired or are phasing out. Without Congressional action, expiration of the individual provisions would increase taxes for 62 percent of taxpayers, while extension will significantly reduce federal revenues over the coming decade.

Analysis

• Over the 2025 through 2034 budget window, permanence for the expiring TCJA individual provisions will reduce federal tax revenue by $3.6 trillion ($3.2 trillion dynamically), the expiring estate tax provisions by $240 billion ($240 billion dynamically), and the expiring business provisions by $648 billion ($351 billion dynamically).
• Long-run GDP would be 1.1 percent higher, offsetting $710 billion, or 16 percent, of the revenue losses.
• The $4.5 trillion reduction in tax revenues would increase the budget deficit and push up interest costs by an estimated $941 billion ($806 billion dynamically). Long-run GNP would only rise by 0.4 percent, as some of the benefits of the tax cuts and larger economy go to foreigners in the form of higher interest payments on the debt.
• As a result of the tax cuts, after-tax incomes would rise by 2.9 percent (3.4 percent dynamically) in 2026 on average. The share of filers who itemize would drop from 33 percent to 13 percent, and 62 percent of filers would see a tax cut from extending the individual provisions.

TCJA Permanence: Topline Preliminary Estimates