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A key economic ambition of President Donald Trump’s potential second term—beyond ongoing tariffs—hinged on extending his 2017 tax cuts. This effort faced a notable setback on May 16 when the proposed legislation faltered due to opposition from several Republicans. The implications of this bill continue to generate concern following recent revelations, with the manner of its defeat potentially exacerbating the situation.
The Tax Cuts and Jobs Act, enacted early in Trump’s initial term, represented a signature legislative triumph and is commonly known as the “Trump tax cuts.” Due to the original passage of this bill, numerous provisions are slated to lapse next year unless an extension is approved. Consequently, securing such an extension has become a significant priority for Trump and Republican leaders in Congress. The president and his supporters have also posited that his aggressive tariff policies could partially compensate for the extension of the tax cuts, though this remains a contentious and often contradictory assertion.
Throughout the past week, details have surfaced regarding the budget bill Republicans intended to utilize to extend the 2017 tax cuts, balanced by substantial reductions in government spending. The House Ways and Means Committee authorized the bill to proceed. The Congressional Budget Office, a nonpartisan agency that provides assessments of the economic consequences of budgetary bills, estimates that the proposed cuts would deprive millions of individuals of their health insurance and food assistance. The current version of the proposal failed to pass a vote in the House, and the reasons for this outcome are discussed later.
This development occurs amid sustained criticism from Democrats and other detractors, who contend that Trump’s tax cuts disproportionately benefit wealthier Americans at the expense of the working class. While this argument holds merit, as does the Republican assertion that the tax cuts would provide some relief to taxpayers across all income levels, the newly proposed cuts unveiled this week have amplified concerns that they will negatively affect lower-income Americans.
Continue reading for comprehensive details regarding the actual ramifications of extending the tax cuts and the current implications for programs like Medicaid. For more information, discover whether Trump could realistically abolish the Department of Education.
The Impact of Extending the Trump Tax Cuts
While “Trump tax cuts” has evolved into a common shorthand for the Tax Cuts and Jobs Act, the ongoing discussion might imply that new reductions are imminent. Although Trump has considered possible additional cuts, it’s worth noting that prolonging the 2017 provisions would generally maintain tax rates and programs at their existing levels.
Therefore, while preserving the provisions could be preferable to allowing them to expire—which would elevate particular tax rates and diminish specific credits—extending the tax cuts is unlikely to alter your tax burden significantly over the past several years. However, some forecasts anticipate that extending these cuts would stimulate income in 2026. The Tax Foundation, which leans conservative, projects an average increase of 2.9%, based on a combination of economic forecasts and maintained tax rates.
Consequences of Letting the Trump Tax Cuts Expire
Republicans argue that the tax cuts benefited a wide range of Americans, and the Tax Foundation projected that 60% of tax filers would face higher rates in 2026 without an extension.
Tax Bracket Adjustments
Tax bracket adjustments are a significant factor. The 2017 provisions lowered income tax rates across seven brackets, excluding the first (10%) and sixth (35%). If the current law lapses, these rates would increase by 1% to 3%.
Income Thresholds
Income thresholds for each bracket would revert to pre-2017 levels. Lending credibility to Democratic counterarguments, these adjustments under the Trump tax cuts seemed more advantageous for higher-income individuals and couples compared to those earning closer to the average U.S. income.
Detailed figures are available in the Tax Foundation’s comprehensive breakdown. Another area of contention for Democrats is that the Tax Cuts and Jobs Act also reduced corporate tax rates from 35% to 21%. Unlike many other provisions, this change was permanent and will not expire in 2026.
State and Local Tax Deductions (SALT)
The cuts also imposed a $10,000 cap on the total amount taxpayers can deduct for “state and local property, income, and sales tax,” known as SALT. Previously, no limit existed. Lisa Greene-Lewis, a tax preparation expert and analyst for TurboTax, told FASTNET via email that this policy could be detrimental to certain taxpayers if the TCJA is extended.
“Taxpayers in states with high state and property taxes are limited to a $10,000 deduction for total state and local property, income, and sales tax, even if they pay significantly more,” Greene-Lewis explained. “If this provision were to revert to its pre-Tax Cuts and Jobs Act (TCJA) state without caps, filers in states with high state and property taxes would be able to deduct the full amounts paid.”
Greene-Lewis also mentioned discussions regarding removing the SALT cap from the plan to extend the TCJA.
Impact on the Standard Deduction
This is another facet where many people would be significantly affected. The standard deduction enables taxpayers to lower their taxable income, provided they forgo itemizing deductions.
For the 2025 tax year, the standard deduction is $15,000 for individual filers and $30,000 for joint filers. If the tax cuts expire, these amounts will decrease by almost half, to $8,350 for individuals and $16,700 for joint filers.
Changes to the Child Tax Credit
The child tax credit is a widely used credit. Its current parameters—$2,000 per qualifying child, phasing out at a gross income of $200,000 for single filers and $400,000 for joint filers—were established by the Tax Cuts and Jobs Act.
If an extension or new bill is not enacted, the child tax credit will revert to its previous levels next year: $1,000 per child, phasing out at $75,000 for single filers and $110,000 for joint filers.
Do the Trump Tax Cuts Benefit the Affluent?
As previously noted, higher-income individuals and couples fared noticeably better under the alterations to tax brackets enacted by the Trump tax cuts. Overall, numerous estimates suggest that wealthier Americans would receive a larger share of the benefits. The Urban-Brookings Tax Policy Center estimated that households earning over $450,000 annually would receive approximately 45% of the tax cut benefits.
The Cost of Extending the Tax Cuts
Tax cuts more favorable to the wealthy are a key reason why some analysts contend that extending the Trump tax cuts would add trillions of dollars to the national debt. An initial estimate from the Tax Policy Center in 2018 indicated that extending the provisions through 2038 would increase the U.S. deficit by $3.8 trillion. A 2024 projection from the Committee for a Responsible Federal Budget estimated an increase of $3.9 trillion to $4.7 trillion through 2035, contingent on which provisions were included.
The preliminary blueprint passed by the House last month incorporated approximately $4.5 trillion in tax cuts, supported by $1.5 trillion in additional reductions in government spending. The remainder would either contribute to the deficit or necessitate further cuts. This reinforces concerns that Republicans intend to substantially reduce funding for Medicare, Medicaid, and Social Security to finance their tax plans. These concerns are seemingly validated by the proposed cuts unveiled this week.
Impact of the Budget Bill on Medicaid
Based on estimates from the Congressional Budget Office, mentioned earlier, at least 7.6 million Americans would lose Medicaid health insurance under the budget proposal’s provisions. This represents nearly 11% of the 70 million Americans currently insured by Medicaid. Among other stipulations, the proposal would require individuals without dependent children or a disability to fulfill an 80-hour-per-month work requirement to qualify for Medicaid and increase the frequency with which individuals must confirm their continued eligibility.
Reasons for the Failed Tax Cuts Extension Vote
During a May 16 House vote, the GOP’s proposal failed to advance from the House Budget Committee, with a 16-21 outcome. All Democrats voted against it, along with five Republicans. These GOP defectors withheld their endorsement due to apprehensions that the aforementioned cuts and changes to Medicaid were insufficient. They also advocated for a complete repeal of all green energy tax credits. Rep. Chip Roy, a Republican from Texas, articulated the concerns of the GOP opposition.
“This bill falls profoundly short,” Roy stated. “It does not do what we say it does with respect to deficits.”
For further insights, explore how Trump’s tariffs may be affecting several key products in our daily tracker.