Understanding the Tax Law and Its Impact on Different Income Groups

During his record-breaking, last-ditch attempt to slow President Donald Trump’s signature tax legislation from becoming law, House Minority Leader Hakeem Jeffries, D-N.Y., drew a contrast with how the bill’s tax provisions treated the rich, as opposed to everyone else.

“Tax breaks for billionaires, permanent; tax breaks for everybody else, expire,” Jeffries said toward the end of his 8 hour, 33 minute-speech July 2. “That is not the way to stand up for everyday Americans. That is extraordinary.”

Social media posts echoed this talking point about the bill’s disproportionate benefits for wealthy people.

Jeffries has a point that several key provisions that benefit taxpayers of more modest means are set to expire in 2028. These include curbs on taxation of tips and overtime pay, as well as tax breaks for people 65 and over and people paying off car loans. In addition, one tax break that would benefit multimillionaires — raising the threshold exempting estates from taxation after death — was made permanent.

However, his comparison leaves out that the law permanently enacted several important provisions of the law that everyone, not just “billionaires,” will benefit from. One notable example: the bill’s extension of Trump’s 2017 tax rate cuts.

Jeffries’ office did not provide supporting evidence for his statement.

Temporary Provisions in the New Law

Several of the individual tax provisions that benefit more modest income earners are temporary, running from 2025 to 2028:

• Up to $25,000 of tip income in certain, customarily tipped industries is now deductible, for people earning up to $150,000 and joint filers earning up to $300,000.
• Up to $12,500 (and $25,000 for joint filers) is now deductible for overtime compensation, for people earning up to $150,000 and joint filers earning up to $300,000.
• An additional deduction of $6,000 is available to Americans 65 and over, for people earning up to $75,000.
• Up to $10,000 in auto loan interest is now deductible for new vehicles with final assembly in the United States, with limits kicking in at $100,000 for single filers and $200,000 for joint filers.

Permanent Breaks in the New Law

The bill does include some newly permanent changes that would primarily benefit wealthier Americans, including a raising of the level at which the estate tax kicks in after death, to $15 million for single filers and $30 million for joint filers beginning in 2026. (Even this provision wouldn’t just affect billionaires, as Jeffries said.)

Some business-related provisions — such as allowing companies to immediately deduct domestic research and development expenses from their taxes — could affect companies owned by billionaires, but also people who are far less wealthy.

However, several notable provisions in the bill were also made permanent, and they will affect a wide swath of taxpayers.

• Extending the 2017 tax cuts for all income groups that had been set to expire at the end of this year.
• Extending the child tax credit, which had also been set to expire. 
• Making permanent the standard deduction and adjusting it for inflation.
• Capping the principal at $750,000 for home mortgages for which an interest deduction can be taken.
• A $1,000 deduction for charitable contributions (or $2,000 for joint filers).

Impact of the Tax Law on Different Income Groups

Jeffries’ underlying critique that wealthier Americans benefit disproportionately from the law’s provisions has merit: Wealthier taxpayers come out ahead compared with lower- and middle-income taxpayers.

The law is “heavily skewed toward the wealthy,” said Michael Linden, director of the advocacy group Families Over Billionaires.

An analysis by the nonpartisan Urban Institute-Brookings Institution Tax Policy Center projected that for 2026, the lowest 20% of the income spectrum, earning up to $34,600 in income, stands to gain about 0.8% in after-tax income after the new law.

For the next 20% — those earning up to $66,800 — the increase is 1.7%.

For the next 20% — those earning up to $119,200 — the increase is 2.3%, while the second-highest 20%, those earning up to $217,100, the increase is 2.8%.

And for the top 20%, the increase is 3.4%.

These calculations look at percentage increases; using the increases in raw dollars instead shows an even sharper tilt towards the rich.

Measured in dollars, the bottom 80% of the income spectrum takes about 40% of the dollars saved with the law, while the highest earners take the remaining 60%.

As time goes on, the analysis sees different results for who would benefit from the law. In 2030, wealthier taxpayers would see a slightly bigger share of the savings.

Our Ruling

Jeffries said of the bill Trump signed, “Tax breaks for billionaires, permanent; tax breaks for everybody else, expire.”

Some provisions that benefit taxpayers of ordinary means, such as those affecting tip and overtime income, are set to expire in 2028. Wealthier Americans, not just billionaires but also multimillionaires, stand to gain from a permanent increase in estates protected from the estate tax.

However, several key elements of the bill — including its permanent extension of the 2017 tax cuts — will benefit all income levels. Although wealthier Americans would gain disproportionately, these permanent tax changes will affect taxpayers up and down the income scale.

The statement is partially accurate but leaves out important details, so we rate it Half True.

By Louis Jacobson, PolitiFact staff writer

Conclusion

In conclusion, the tax law has both temporary and permanent provisions that affect different income groups in various ways. While it is true that some tax breaks for billionaires are permanent, it is also important to note that other provisions, such as the extension of the 2017 tax cuts, will benefit all income levels. The law is complex, and its impact will be felt differently by different groups of people.

Frequently Asked Questions

Here are some frequently asked questions about the tax law:

Q: What are the temporary provisions in the new law?

A: The temporary provisions include curbs on taxation of tips and overtime pay, as well as tax breaks for people 65 and over and people paying off car loans. These provisions are set to expire in 2028.

Q: What are the permanent breaks in the new law?

A: The permanent breaks include the extension of the 2017 tax cuts, the extension of the child tax credit, and the making permanent of the standard deduction. These provisions will affect a wide swath of taxpayers.

Q: Do wealthier Americans benefit disproportionately from the tax provisions in the bill?

A: Yes, wealthier Americans do benefit disproportionately from the tax provisions in the bill. According to an analysis by the Urban Institute-Brookings Institution Tax Policy Center, the top 20% of earners will see an increase of 3.4% in after-tax income, while the bottom 20% will see an increase of only 0.8%.

Q: What is the impact of the tax law on different income groups?

A: The tax law has a varying impact on different income groups. While wealthier Americans benefit disproportionately, the law also includes provisions that will benefit all income levels, such as the extension of the 2017 tax cuts. The bottom 80% of the