Donald Trump’s tax bill explained- President Trump’s latest tax bill is stirring plenty of buzz in Washington, with Republican leaders pushing hard to get a House vote before Memorial Day. But the path hasn’t been smooth. The bill, packed with trillions in spending and tax cuts, still faces tough questions—especially about how it handles state and local tax (SALT) deductions and Medicaid cuts. Let’s break down what’s inside this big tax plan and why it matters to you.
What’s the core of Trump’s tax bill for individuals?
At the heart of the tax bill is an extension of the 2017 Tax Cuts and Jobs Act, which President Trump signed during his first term. This means that the lower tax rates for most Americans, set to expire soon, would stay in place. The top tax rate for the highest earners remains at 37%, after Republicans dropped the idea of raising rates on millionaires—for now.
But the bill isn’t just about keeping things as they are. It also offers some new tax breaks for individuals. For example, it promises to eliminate taxes on tips, overtime pay, and even car loan interest—a move that Trump made a big deal about on the campaign trail. There’s also an expanded standard deduction for seniors and a raised child tax credit, increasing from $2,000 to $2,500. Both these perks would last until 2029, when the cuts are set to expire alongside many others.
A standout new feature is the creation of "MAGA accounts"—a savings plan for children. These accounts could kick off with a $1,000 government contribution and allow families to add up to $5,000 a year from after-tax income. The name obviously reflects Trump’s branding, but experts warn these accounts might not be as beneficial as they sound, since withdrawals may not be tax-free.
How will businesses be affected by the tax bill?
The business side of the bill includes some big incentives. It makes permanent the 199A pass-through deduction at 23%, which mainly helps small businesses like partnerships and S corporations. Also, companies could get a 100% deduction for the cost of new factories or upgrades to existing ones, encouraging more manufacturing investment.
However, some proposed changes didn’t make the cut. For instance, Trump’s push to close the “carried interest loophole” — a favored tax break for hedge fund managers — is not part of the bill. Also missing are any cuts to the corporate tax rate, which Trump once promised to lower to 15% for U.S. manufacturers.
One other notable point is a new rule barring states from regulating artificial intelligence systems for ten years. This could be a big win for tech companies aiming to avoid heavy local restrictions.
The bill also rolls back several clean energy tax credits introduced under President Biden, including those for solar panels and electric vehicles. Some Republicans from states benefiting from these credits have already signaled they might fight these cuts in the Senate.
Why is the SALT deduction such a big deal in the tax bill?
The state and local tax (SALT) deduction is one of the trickiest parts of this bill. The current SALT cap limits how much taxpayers can deduct from their federal taxes, which has frustrated people in higher-tax states. Some Republicans want to increase the SALT cap dramatically—up to $62,000 for individuals.
But raising the SALT cap could cost nearly $1 trillion over the next decade—more than most other tax cuts combined. This has many lawmakers on edge, especially those who worry about adding to the national debt.
House Speaker Mike Johnson is trying to hold the party together despite these disagreements, aiming for a full House vote before the summer recess. Yet the SALT fight is just one of several hurdles that could slow down or reshape the bill.
What’s the price tag of Trump’s tax bill and how will it affect the debt?
This tax bill is massive—clocking in at over 1,100 pages—and it comes with a hefty cost. According to the nonpartisan Joint Committee on Taxation, the tax parts alone could add over $3.8 trillion to the deficit. That breaks down into about $7.7 trillion in tax cuts offset by $3.9 trillion in tax-specific revenue increases.
But when factoring in other spending in the full bill, the overall new debt could top $3.2 trillion, says the Committee for a Responsible Federal Budget. And if the temporary tax cuts are extended beyond their current deadlines, the cost could soar above $5.2 trillion in the next ten years.
To make matters more urgent, Treasury Secretary Scott Bessent recently warned that the U.S. is close to hitting its borrowing limit, which this bill proposes to raise by $4 trillion to avoid a crisis.
How does the bill tackle current culture and immigration issues?
The bill doesn’t shy away from politics. It introduces new taxes aimed at some universities and limits certain benefits for undocumented workers. There’s also a new 5% tax on money sent by non-citizens to foreign countries, a move that could impact immigrant communities.
These provisions add a cultural and political layer to the tax bill, reflecting some of the controversies and priorities that defined Trump’s time in office.
What’s next for Trump’s tax bill?
This “big, beautiful” tax bill is still very much a work in progress. With over a thousand pages and trillions of dollars at stake, it faces intense scrutiny and debate, especially on the SALT deductions and Medicaid cuts.
Speaker Mike Johnson hopes to get it passed by the House before Memorial Day, but it’s clear that the Senate will also have a major say in how it shapes up. And with many temporary cuts set to expire in 2029, the conversation about taxes in America is far from over.
As Brian Gardner from Stifel put it, this bill is just the “opening bid” in what promises to be a long and challenging process.
FAQs:
What are MAGA accounts in Trump’s tax bill?
MAGA accounts are new child savings plans with government contributions but limited tax-free withdrawals.
How does the tax bill affect SALT deductions?
The bill proposes raising SALT caps, which could cost nearly $1 trillion and faces opposition in Congress.
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