House Budget Bill Cuts Average Taxes By $2,900, Favors High-Income Households

Forbes

2 days ago

The budget reconciliation bill passed by the House on May 22 would cut taxes by an average of about $2,900 in 2026, according to a new analysis by the Tax Policy Center that reflects eleventh hour changes to the measure. About 84 percent of households would get a tax cut.
The cost would be steep, however. The Joint Committee on Taxation estimates the measure would reduce federal revenue by $3.9 trillion through 2034.
As with earlier versions of the bill, the measure would be highly regressive. Tax cuts would be relatively small for low- and moderate-income households but much bigger for those with higher-incomes, especially those making between about $460,000 and $1.1 million (in the highest-income 95th-99th percent).
The House bill would cut taxes for the lowest-income households (those making less than about $35,000) by about an average of $160, or less than 1 percent of their after-tax income. Middle-income households, who will make between about $67,000 and $119,000, would pay an average of $1,850 less, or 2.4 percent of their after-tax income.
By contrast, those making between $460,000 and $1.1 million would receive an average tax cut of about $21,000, or 4.3 percent of their after-tax income. The very highest-income 0.1 percent of households, those making $5 million or more, would receive average tax cuts of almost $300,000 in 2026, about 3.3 percent of their after-tax income
Households making $217,000 or more would get nearly 60 percent of the benefits of the bill, which the House calls the One Big Beautiful Bill Act (OBBBA). Those in the top 5 percent, who make $460,000 or more, would get about one-third of the benefit. Middle income households would receive about 13 percent, while the lowest income tax filers would get about 1 percent.
The House bill extends most individual tax provisions of the 2017 Tax Cuts and Jobs Act (TCJA), including its higher standard deduction and child tax credit and lower tax rates for many. It continues and expands special tax benefits for some pass-through businesses such as partnerships and sole proprietorships, adds some business tax breaks, and includes a higher estate tax exemption.
At the request of President Trump, it makes tips and overtime tax free, at least temporarily, and allows consumers to deduct interest on auto loans. It increases the standard deduction by up to $4,000 for tax filers age 65 and older and temporarily boosts the standard deduction for all itemizers.
At the same time, it caps itemized deductions for top-bracket taxpayers, limits tax benefits for certain immigrants, raises taxes on university endowments, and repeals a wide range of green energy tax subsidies that were adopted by Congress in 2022. It also limits the ability of low-income households to receive subsidies, in the form of tax credits, when they buy health insurance on the Affordable Care Act exchanges.
Changes to the OBBBA just before it passed the House included a more generous deduction for state and local taxes and some offsetting tax hikes. The new TPC analysis reflects those adjustments.
Because the bill has so many highly targeted tax breaks, it would affect even people within the same income groups in very different ways.
That is especially striking among low-income households, those making about $35,000 or less. Excluding the loss of those premium tax credits, they'd get a modest tax cut averaging about $160 in 2026.
But after taking into account their loss of some of those health insurance premium subsidies, TPC estimates after-tax incomes of the very lowest income households would decline on average, compared to current law. Those making $20,000 or less would see their incomes fall by an average of $40 in 2026.
Similarly, mostly thanks to a more generous child tax credit, families with children would do far better than others making the same income. For example, a middle-income family with kids would pay about $3,000 less on average in 2026, while all households in that income group would see their taxes reduced by about $1,600 on average..
Effects would vary at the top of the income distribution as well. TPC estimated that even though the top 1 percent would do very well overall on average, about 17 percent would pay more than under current law. In part this is due to limits on the ability of some pass-through businesses to fully deduct their state and local taxes, an expansion of the Alternative Minimum Tax, and a limit on all itemized deductions for top-bracket households.
The Senate is likely to want to make changes to the bill. Possibilities include key spending provisions, such as cuts to Medicaid and food assistance[TG1] , and certain tax provisions, such as the limit on the state and local tax deduction. But the major tax contours of the House bill, which have been endorsed by President Trump, are likely to survive.