Imagine President Donald Trump waking up to the news that California faces a $12 billion deficit, and instead of letting the state reckon with its budget bloat, announcing a plan to make taxpayers in West Virginia, Ohio and the Dakotas help bail out the likes of Gov. Gavin Newsom. Unfortunately, a small band of Republicans in the House has been fighting to make this scenario a reality.
The Big Beautiful Bill, passed by the House and under consideration in the Senate, accomplishes a number of important policy goals. Most importantly, it forestalls the expiration of the Tax Cuts and Jobs Act (TCJA), sparing taxpayers from significant tax increases. According to the Tax Foundation, if the TCJA were to expire, 62% of households would see higher taxes.
Some households will experience a larger hit than others. A single filer earning $75,000 could face an increase of more than $1,700, while a family of four making $165,000 might pay an extra $2,450. For families with three children earning $200,000, the increase could soar to nearly $7,500. Preventing this tax hike on families is rightfully a priority for Trump and the GOP-led Congress.
Beyond reducing household tax liabilities, the TCJA also simplified taxes for millions of Americans. By nearly doubling the standard deduction, it substantially reduced the number of people who had to itemize deductions. Before the TCJA, 30% of individual tax returns included itemized deductions. By 2018, the number had dropped to 11%, and it has remained around 10% since then. This tax simplification was a win for many Americans, particularly those who had long been burdened by the detailed and time-consuming record-keeping required by itemization.
Before the enactment of the TCJA, taxpayers could deduct all state and local taxes (SALT) from their federal income tax. Another tax provision, the Alternative Minimum Tax, however, effectively capped this deduction. The TCJA essentially repealed the AMT but imposed a $10,000 cap on the SALT deduction. This interaction is complicated, but the upshot is that combined with other policy changes in the TCJA, most taxpayers — even those in high-tax states — saw a tax cut.