Tax cuts can be seen as bad because they often increase budget deficits and national debt, potentially requiring cuts to public services like education and infrastructure, disproportionately benefiting the wealthy while not effectively spurring broad economic growth, and leading to less investment in public goods that support working families and communities, ultimately widening inequality and harming long-term societal well-being. Critics argue that these cuts shift the tax burden, create fiscal instability, and fail to deliver promised economic benefits for most people.
Economic Impact:
Rough calculations indicate that personal saving would not rise by more than 2 percent. However, since funds spent on tax cuts cannot be saved by government in the form of debt repayment, national saving would fall, which would hurt prospects for economic growth.
If the individual tax cuts expire, taxpayers in all income groups would face higher and more complicated taxes. Machinery and equipment expensing is a key provision that, if allowed to expire, would especially harm capital-intensive industries like manufacturing.
Economists also generally agree that large tax changes can move the economy. For example, tax cuts can temporarily stimulate economic activity by boosting demand. In the longer run, a tax system with low rates and a broad base is more likely to promote prosperity than one with high rates and a narrow base.
The absence of income tax can lead to reduced funding for essential public services, such as education and infrastructure, impacting the quality of life. Although no income tax may attract new residents, the overall cost of living in these states can still be relatively high, complicating financial advantages.
What is being proposed. According to Lutnick's interview with CBS News, Trump's tax policy goal is to remove federal income taxes for individuals earning under $150,000 annually. Additional proposals under discussion include: Eliminating taxes on Social Security benefits.
Tax Rates and Tax Brackets
The Tax Cut and Jobs Act (TCJA) reduced statutory tax rates at almost all levels of taxable income and shifted the thresholds for several income tax brackets (table 1). As under prior law, the tax brackets are indexed for inflation but using a different inflation index (see below).
Tax Cuts Can Be Counterproductive for Growth
Yet another reason tax cuts don't work is that every dollar lost to tax cuts is a dollar that can't be used to fund education, transportation, and other public services. High-quality public services are important to residents, businesses, and the economy.
In 2022, 87 percent of pass-through deduction benefits went to the top 10 percent of Americans by income, and half of the benefits went to millionaires.
Trump Tax Plan Changes: Standard Deduction
The 2017 Trump tax law (TCJA) nearly doubled the standard deduction for all filers, and OBBB bumped them up. If you're a single filer or if you're married filing separately, your standard deduction for 2025 rose to $15,750 under OBBBA.
A provision in the laws governing taxation that allows people to reduce their taxes. The term has the connotation of an unintentional omission or obscurity in the law that allows the reduction of tax liability to a point below that intended by the framers of the law.
The 2025 Federal Tax Debate
Much like the 2017 tax law, the new law favors the richest taxpayers. More than 70 percent of the net tax cuts will go to the richest fifth of Americans in 2026, only 10 percent will go to the middle fifth of Americans, and less than 1 percent will go to the poorest fifth.
FACT: The bill cuts taxes and lowers rates for all Americans. While the status quo tilts in favor of the wealthy, the Tax Cuts and Jobs Act delivers tax relief for middle-income Americans by doubling the standard deduction and lowering rates for those who need it most.
Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity.
Nine U.S. states levy no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Sales, property, and excise taxes can be higher in states with no income tax as a trade-off to fund important government services.
Republicans are focused on extending tax cuts that favor the wealthy, while Democrats are working to pass tax reforms like a permanent expansion of the Child Tax Credit that would benefit working Americans.
The Congressional Budget Office (CBO) estimated in 2018 that the 2017 law would cost $1.9 trillion over ten years, and recent estimates show that making the law's temporary individual income and estate tax cuts permanent would cost roughly another $4.2 trillion through 2035.
The standard deduction increased for 2025 and 2026, and a new temporary “bonus” deduction for adults 65 and older begins in 2025. The child tax credit increased to $2,200 for the 2025 and 2026 tax years; retirement plan contribution limits for IRAs and 401(k)s also increased for 2026.
At the end of 2025, the individual tax provisions in the Tax Cuts and Jobs Act (TCJA) expire all at once. Without congressional action, most taxpayers will see a notable tax increase relative to current policy in 2026.
Under the law, there were numerous changes to the individual income tax, including changing the income level of individual tax brackets, lowering tax rates, and increasing the standard deductions and family tax credits while itemized deductions are reduced and the personal exemptions are eliminated.
For the 2025 tax year (filing in 2026), key U.S. tax breaks include a higher standard deduction, an enhanced Child Tax Credit, new deductions for tips, overtime, and auto loan interest, plus an extra deduction for seniors (65+). A significant boost for some filers is the increased State and Local Tax (SALT) deduction cap to $40,000, making it easier to deduct property and income taxes. These changes stem from new legislation, the "One Big Beautiful Bill," that also makes the 2017 tax brackets permanent.