House Speaker Mike Johnson (R-LA) will leave after passing a Republican budget resolution in Washington on February 25, 2025.
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As Congress discusses how trillions of dollars are being processed at tax expiration, lawmakers on both sides have lobed claims about which consumers see the best benefits from expanding them. Economists and tax experts say the answer is not that easy.
In short, WHO benefits depend on your reference frame.
House Republicans passed the budget plan on Tuesday, laying the foundation for an extension of the tax cuts and employment laws enacted during President Trump’s first term in 2017.
Many individual taxpayer cuts expire after 2025 unless Congress acts. And GOPs can do this with a simple majority vote in Parliament by using a special legislative operation called budget adjustment.
Rep. Richard Neal, a ranking member of the House Ways and Means Tax Committee, said Wednesday that the Republican policy plan is an extension of Trump’s tax cuts estimated to cost more than $4 trillion — equivalent to a “reverse robin food scam” given to the rich and taken from the poor.
Meanwhile, Republicans say low-income and middle-income families are standing to win under the plan.
“Expanding Trump’s tax cuts will provide the greatest relief for generations of working-class Americans and small businesses,” said Rep. Jason Smith and R-Misouli, chairman of the Way and Means Committee.
Experts say there are benefits to both sides’ discussions.
“What’s interesting is that both can be true depending on how they interpret what they’re saying,” said James Hines, a law professor at the University of Michigan and a research director at the Office of Tax Policy Research.
Trump Act cuts taxes for most people
President Trump spoke about passing the Tax Reform Act on December 20, 2017 on the White House South Lawn.
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Experts said tax cuts and employment cut taxes for most U.S. households.
They said they are pretty much in line with the Republican claims.
Changes such as large-scale child tax credits and an expansion of the standard deductions for many low- and middle-class incomes. Meanwhile, the decline in marginal tax rates and tax credits for business owners have primarily helped the wealthy people, experts said.
If the TCJA provisions are extended, 62% of the tax file will have lower taxes in 2026 compared to when the action expires, according to the Tax Foundation. (To put it another way, many people’s tax bills will increase next year without extension.)
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Because these provisions are in place, Americans, on average, increase their income by 2.9% after tax, according to the Tax Foundation. He said revenues would increase by 3.4%, considering the broader impact of the US economy’s tax cuts.
Similar findings were made in a US Treasury report issued on the day the Biden administration fell. The average person will receive a 2.2% tax cut by extension of the Trump Act. (The estimate is the 2025 budget year.)
All revenue groups will boost after-tax revenue, the Treasury said.
The rich are the “biggest winners”
Hakeem Jeffries (D-ny), a leader in the US, will be speaking after Pete Aguilar (D-CA) and Rep. Catherine Lark (D-MA) joined in and after the House passed a Republican budget resolution on the expenditure bill on February 25, 2025.
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However, with the extension, the biggest tax cuts will occur in families with the highest income, the Treasury said.
According to a July 2024 analysis by the Urban Brooks Tax Policy Center, the top 5% of households “roughly earn more than $450,000 a year, but they are the “biggest winners.” They said it is more than 45% of the benefits of extending the tax cuts and employment law.
Similar findings were made in Penn Wharton’s budget model analysis of the impact of a wide range of Republican tax plans.
According to a Wharton analysis issued Thursday, the lowest 80% of income earners will earn 29% of the total tax cut proposed in 2026. The top 10% said they would win 56% of the value.
This dynamic, coupled with the potential for spending cuts on programs such as Medicaid and food stamps, speaks to Democrats’ debate. Such programs primarily benefit low earners.
Wharton estimates that the combination of tax cuts and spending cuts in programs such as Medicaid and Food Stamps will “deteriorate low-income households” even after explaining economic growth.
Some tax analysts consider after-tax income to be one of the best reference frames for assessing policy impacts, as they estimate how much a household’s purchasing power will improve. However, others disagree with saying that it is difficult to control for other economic variables that could change income.
The extension of the Trump Act would increase 3.2% in households (over $1 million a year) that will increase their post-tax income by 3.2% in 2027, according to the Center for Tax Policy. In terms of dollars, their average tax savings are around $70,000.
In comparison, the Center for Tax Policy says middle-income households will earn a 1.3% income increase, or a tax cut of $1,000.
The rich “pay most taxes”
In a sense, this dynamic should be expected as the US income tax system is progressive, experts said. In other words, high-income earners generally carry more of their overall tax burden than low-income earners.
“Who got the dollar?” and it’s mostly rich taxpayers,” said Hines of the University of Michigan. “But that’s because it’s a tax cut and they pay most of the tax.”
According to a recent tax foundation analysis, the top 1% paid 40% of all US income taxes collected in 2022. The bottom 90% paid about a quarter (28%) of the gross income tax.
“The Democrats say that a large portion of the tax has gone to the rich. They’re absolutely right,” Hines said.
However, the TCJA reduced taxes for working families rather than wealthy families in proportionately, a White House spokesperson said.
Experts agreed to the assessment.
“The Republican said, “But the cut wasn’t leaning towards the rich compared to how much the original people were paying,” Hines said.
President Donald Trump maintains a copy of the law he previously signed before signing the tax reform bill at his Oval Office on December 22, 2017.
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For example, after Trump’s tax cuts came into effect, the bottom 50% of Americans fell by 15% in their average federal tax rate from 2017 to 2018, according to the Tax Foundation. (It fell from 4% to 3.4%.)
In contrast, the top 1% fell from 26.8% to 25.4% at a lower average rate (approximately 5%) during that period.
“The reason the debate is so fractured is that there are elements of truth on both sides,” said Garrett Watson, director of policy analysis at the Tax Foundation. “It’s a metric battle, what weight should we put on each one?”
