Q&A – What the Income Tax Changes w/the One Big Beautiful Big Bill Mean to You – Driven By Braman Motorcars
Each day I feature a listener question sent by one of these methods.
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Today’s Entry: @brianmuddradio I listen to you and am a fan. The talk radio sta. here uses ABC for hourly news. It has been saying the GOP reconciliation bill “cuts Medicaid and lowers taxes on the wealthy.” Last two days constantly. How about it keeps tax cuts in place for the middle class?
Bottom Line: Well, your suggestion is certainly a more honest depiction than that of ABC's and it provides a good opportunity for me to break down the federal income tax plan in the current version of the OBBB, or One Big Beautiful Bill Act (the actual name of the legislation), which is nearing the finish line...and specifically what it means to you. So, let’s get to it.
The biggest change of all is actually no change at all. If that sounds like an oxymoron it isn’t. President Trump’s Tax Cuts and Jobs Act of 2017 brought about our current income tax policy and it’s set to expire at the end of this year. The OBBB would make the existing Trump tax policy the country’s permanent policy.
The TCJA led to a lower federal income tax burden for 80% of Americans, with 4.8% paying higher taxes. Ironically, given the commonly false reporting of the Trump tax policy, a la what is cited from ABC News in today’s note, it’s the highest income earners who actually paid more under the Trump tax policy because it eliminated many deductions and tax loopholes commonly used by upper income individuals. In reality, the total federal income tax burden would most commonly be lower for the highest income earners if the Trump income tax policy was allowed to expire. It’s the exact opposite of what’s often reported in the news. As for actual federal income tax changes under the law:
The OBBB would do the following:
- Adjust tax brackets annually based on inflation
- Increase the standard deduction by an additional $1,000 per federal tax filer
- Increase the child tax credit by an additional $500
- Increase the standard deduction for those 65 and older by $4,000
- Eliminates federal income tax on tips for reported income of up to $160,000
- Eliminates federal income tax on overtime for reported income of up to $160,000
In other words, most Americans will see a lower federal income tax burden under the OBBB. Here’s what that looks like:
- 90% of Americans currently use a standard deduction and will benefit from the increase
- 40 million families use the child tax credit and will benefit from that increase
- 14% of tax filers are 65 and older and will benefit from the increased deduction for seniors
- 4.3 million Americans are tipped employees and will benefit from no tax on tips
- 18 million Americans earn overtime compensation and will benefit from no tax on overtime
As always there are two sides to stories and one side to facts. Those are the facts. Almost all Americans benefit, most with even lower tax burdens that what they currently pay and the only people who don’t benefit are upper income earners.