07/08/2025
ĐẠO LUẬT TO & ĐẸP
Ends the tax on tips
Ends the tax on overtime
Brings jobs back to the U.S.
Streamlines federal bureaucracy
Invests in American infrastructure
Protects American innovation
Lowers energy costs
Empowers small businesses
Permanently secures the border
Increases child tax credit
Slashes taxes on social security
Reconciliation
Americans are already struggling with high prices and economic uncertainty thanks to President Donald Trump’s sweeping tariffs. Congressional Republicans are proposing to make life even less affordable by passing the One Big Beautiful Bill Act. This legislation would enact the largest cuts to Medicaid and food assistance in American history, increase gas and electricity prices, and add trillions to the federal debt while providing new tax breaks that overwhelmingly benefit the wealthiest Americans. If enacted, the bill would initiate the largest transfer of wealth from working-class Americans to the ultrawealthy in history. The Center for American Progress is working to highlight the countless harms Americans would suffer under congressional Republicans’ extreme tax and budget proposals.
The Good, the Bad, and the Ugly in the One Big Beautiful Bill Act
Senate Republicans have passed legislation to extend many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) alongside dozens of new provisions, following broadly similar legislation passed by House Republicans. Any comprehensive tax legislation is going to have its wrinkles, and the “One, Big, Beautiful Bill” is no different.
We have previously published estimates of the budgetary, economic, and distributional effects of the House legislation and the Senate legislation, and this post will dive into the good, the bad, and the ugly of the Senate package, particularly in contrast to the House bill.
The Good
Both the House and Senate bills make some smart tax cuts and revenue increases.
Most of the good tax policy aligns with Tax Foundation’s principle of stability. The Senate bill makes permanent the House bill’s provisions allowing expensing for investment in short-lived assets and domestic research and development. Permanent expensing has the most bang-for-the-buck when it comes to economic growth. In the context of the full Senate bill, the two provisions boost long-run GDP by 0.7 percent by providing taxpayers the certainty they need to boost long-run investment. The Senate retains the House bill’s temporary expensing for qualified structures, a good addition that would need to be made permanent for long-run economic growth.
The Senate bill also makes permanent TCJA’s less restrictive limitation on interest deductions. Both bills provide a permanently higher threshold for expensing certain equipment for smaller businesses (Section 179 expensing).
The House and Senate bills both secure permanent extension of the rates and brackets of the 2017 individual tax cuts, providing certainty for households and stability to the structure of the tax code. The Senate bill also permanently extends a larger standard deduction and a modified alternative minimum tax threshold. Both bills permanently extend some of the TCJA’s limits on some itemized deductions, such as for mortgage interest, and limit the value of itemized deductions for top earners. The standard deduction and limitations on itemized deductions have greatly simplified the tax code for millions of taxpayers.
The Senate does slightly better than the House on the SALT cap.
Initially, the Senate Finance draft retained the $10,000 cap on the state and local tax (SALT) deduction. However, the final Senate version raises the SALT cap to $40,000 (adjusted by 1 percent annually) for taxpayers earning less than $500,000 from 2025-2029 before reverting to the $10,000 cap permanently afterwards.
This approach is still preferable to the House bill, which makes the $40,000 SALT cap for taxpayers earning less than $500,000 permanent.
Regarding the estate and gift tax, the bills institute a permanent (and inflation-adjusted) exemption level of $15 million beginning in 2026.
The bills establish permanent, though different, solutions for the treatment of international business income, removing the threat of substantially higher taxes at the end of this year for US-based multinational companies. While the House permanently extends a slightly less generous version of current policy for the international regime (GILTI, FDII, and BEAT), the Senate introduces permanent reforms (with new acronyms) that increase tax rates but reduce double taxation.
Both bills also raise revenue relative to current law by reducing some of the tax code’s many tax credits, deductions, and other preferences.
The largest area of reform is the Inflation Reduction Act’s (IRA) green energy tax credits; both bills raise about $500 billion over a decade, reducing the cost of the green energy credits by about half.
Several IRA credits are repealed—as for electric vehicles (EVs) and residential energy products, which are expensive and ineffective—while most others are restricted or phased out quicker. However, the Senate bill expands the carbon oxide sequestration credit and extends the clean fuel production tax credit, while introducing additional compliance challenges for many credits.
Health insurance premium tax credits, projected to cost about $1 trillion over the next decade, are pared back about 20 percent by tightening eligibility rules and reducing improper payments. The bills also tighten some tax-exempt rules, such as for unrelated business income.
The Bad
The bills spend far too much money on political gimmicks and carveouts. They both introduce tax exemptions for overtime pay and tips, a deduction for auto loan interest, and an additional standard deduction available for some seniors, all of which violate basic tax principles of treating taxpayers equally.
Combined, the four provisions cost more than $350 billion over the four years they are in effect in the Senate version, and the cost would more than double if they are made permanent. Complicated eligibility restrictions for some new deductions reduce the cost somewhat, but it would be better to not introduce bad ideas in the first place.
Lawmakers have also made a costly mistake on the treatment of non-corporate businesses. In 2017, lawmakers introduced a 20 percent deduction for business income that is taxed on the individual rate schedule and not at the corporate tax rate of 21 percent. Taxes on dividends and capital gains are a second layer of tax on corporate income.
The non-corporate businesses (also known as “pass-throughs”) face a few changes in this legislation, but the main change is that the deduction is made permanent at 20 percent in the Senate version and increased to 23 percent by the House. The House version would cost more than $700 billion over the next decade ($800 billion according to the Joint Committee on Taxation), while the Senate version costs “just” $655 billion under our estimates.
Increasing the pass-through deduction would further decrease the effective tax rates on pass-through income relative to corporate profits, making the tax code less neutral with respect to business form.
The tax portion of the Senate bill is even more expensive than the House equivalent—reducing revenue by $5.0 trillion on a conventional basis and $4.0 trillion on a dynamic basis, versus $4.0 trillion in revenue on a conventional basis and $3.1 trillion on a dynamic basis for the House version. Even combined with each bill’s spending changes, the Senate bill leads to a larger deficit increase: nearly $2.9 trillion over the next decade, compared to $1.7 trillion under the House bill, both on a dynamic basis.
Lawmakers could have reduced the cost of their legislation by trillions of dollars through further cleaning up the tax code.
Options, including strengthening TCJA’s limitations on itemized deductions, rolling back tax exclusions for various types of employer-sponsored benefits, and repealing tax expenditures, such as the credit union exemption and the low-income housing tax credit (which instead gets extended in both versions of the legislation), would have offset more of the revenue losses from tax cuts.
The Ugly
The bills further complicate the tax code in several ways, sending taxpayers through a maze of new rules and compliance costs that in many cases likely outweigh potential tax benefits.
No tax on tips, overtime, and car loans comes with various conditions and guardrails that, if enacted, will likely require hundreds of pages of IRS guidance to interpret.
The changes to the IRA credits, while commendable in many ways, keep in place some of the most complicated rules, e.g., bonus credits for meeting prevailing wage and apprenticeship requirements, and add new “foreign entity of concern” restrictions that may make many of the credits cost-prohibitive.
While the bills provide new incentives for saving, the accounts are redundant and the rules complex.
The tax code is already littered with a confusing array of special preferences for savers, including tax-preferred accounts for education, health, retirement, and other purposes that go largely unused by low- and middle-income households.
Rather than simplifying and liberalizing the rules to allow saving for any purpose without penalty (universal savings accounts), both bills expand savings accounts for higher education (529 accounts) and for individuals with disabilities (ABLE accounts), drawing new lines for eligible expenses and contribution levels.
The Senate bill initially left the House’s expansions of health savings accounts (HSAs) out but partially added them back in the final version.
The bills introduce a new savings vehicle called “Trump Accounts,” an entirely new type of incentive that includes a $1,000 government-provided baby bonus for children born in the next four years.
The accounts allow taxpayer contributions up to $5,000 a year that can grow tax-free until the beneficiary withdraws the money at age 18 or older, at which point the withdrawal is subject to capital gains tax if used for a few qualified expenses or otherwise ordinary income tax plus a 10 percent penalty. Various other conditions apply. Trump Accounts provide a more limited and restricted tax benefit than existing saving incentives, such as 529 accounts.
The bills also allow certain tax-exempt entities to contribute to Trump Accounts. The major effect is to introduce a new baby bonus entitlement that requires taxpayers to track yet another small dollar account for 18+ years. This is a missed opportunity to simplify saving and improve financial security for all Americans.
The bills establish a new tax credit for donations to scholarship-granting organizations, which may be intended to work in tandem with Trump Accounts.
The Senate makes the credit permanent but shrinks it to $1,700 instead of the greater of $5,000 or 10 percent of adjusted gross income.
While helpful for some, the tax credit would undoubtedly require a lot of rulemaking and administration by the Treasury Department and IRS, which is already overwhelmed with the task of administering our complicated tax code and multiple benefit programs under current law.
Big Picture
The One Big Beautiful Bill Act provides certainty for US households by permanently extending the TCJA individual rates and brackets and makes permanent one of the most pro-growth tax policies available: expensing for investment in short-lived assets and domestic research and development.
However, it focuses too heavily on political carveouts like the “no tax on tips and overtime” exemptions and misses a critical opportunity to address the deficit and simplify the code.
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