President Trump this weekend signed into law a massive tax and spending megabill that will reduce revenue by around $570 billion in 2026 and mainly help the richest Americans and foreign investors. Congress and the president could have spent less than half that much money on a tax bill that does more for working-class and middle-class households. Even simply extending the expiring 2017 Trump tax law provisions would have been significantly less expensive.
- The megabill will reduce federal revenue by nearly $570 billion in 2026, the first year it is in effect and before any of its important provisions expire.
- More than 70 percent of the benefits of the megabill’s net tax cuts would go to the richest fifth of Americans and 45 percent would go to the richest 5 percent of Americans. That does not count more than $30 billion in tax cuts under the new law that would flow to foreign investors who own stocks in companies benefiting from the bill’s corporate tax cuts.
- An alternative plan including frequently discussed tax proposals would have cost $264 billion in 2026, less than half as much as the megabill. This includes extending expiring 2017 Trump tax provisions for those making less than $400,000, extending an expansion of the health insurance premium tax credits under the Affordable Care Act and reinstating an expansion of the Child Tax Credit that was in effect in 2021.
- This alternative plan would have provided much larger average tax cuts to the bottom 60 percent of Americans than the megabill will.
A previous report from ITEP provides detailed estimates on the tax provisions in the megabill, including the estimates in Figure 1 below, showing more than 70 percent of the benefits flowing to the richest fifth of households next year.
FIGURE 1
This report explains how the megabill compares to simply extending the tax provisions that expire at the end of this year without making other changes, as well as the alternative outlined above.
Figure 2 below illustrates the revenue impact of these three approaches.
Extend Tax Provisions That Otherwise Will Expire at the End of 2025
This includes extending two sets of provisions that expire at the end of 2025 if Congress does not act. The first is the group of temporary provisions enacted as part of the 2017 tax law under Trump. Extending these costs $334 billion in 2026. The second is an expansion of tax credits helping households to pay health insurance premiums (an expansion that was enacted under President Biden). Extending this health care credit expansion would cost about $21 billion in 2026. The combined costs of simply extending these expiring provisions into 2026 are roughly $355 billion.
FIGURE 2
Revenue Impact (in Billions) in 2026 of Approaches to Tax Provisions Compared to Current Law
| Extend Tax Provisions Expiring End of 2025 | Newly-Passed GOP Megabill | Potential Alternative Approach | |
|---|---|---|---|
| Extend and/or Modify Trump Tax Law Provisions | -$334 billion | -$402 billion | -$129 billion |
| Extend the Expansion of Health Care Credits | -$21 billion | $0 | -$21 billion |
| Provisions Proposed as New Middle-Class Tax Cuts (Trump’s Campaign Proposals, Democrats’ Child Tax Credit Expansion) | $0 | -$58 billion | -$113 billion |
| Business Tax Breaks (not counting 2017’s deduction for pass-through businesses) | $0 | -$165 billion | $0 |
| Other Tax Provisions | $0 | +$56 billion | $0 |
| TOTAL | -$355 billion | -$568 billion | -$264 billion |
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The Megabill
The megabill extends the expiring 2017 provisions and modifies several of them so that they cost $402 billion in 2026. The bill does not extend the expansion of the Affordable Care Act tax credits. It does provide $58 billion in tax breaks that are described as benefits for the middle class, including tax breaks for tips, overtime pay, seniors, and car loans. And it also includes additional business tax breaks and other provisions, bringing its total cost to $568 billion in 2026.
Extend 2017 provisions to non-rich Americans, extend health care subsidies, expand the Child Tax Credit
The third approach is an alternative that would cost less than half as much as the megabill and benefit middle-income households more. It would extend the expiring 2017 provisions for those with incomes of less than $400,000, as former President Biden proposed. Because this could be interpreted in many ways, this analysis interprets this to follow a detailed description in a January Treasury Department report. This would cost $129 billion in 2026, far less than a full extension of the 2017 provisions. It would also include the $21 billion extension of the Affordable Care Act credit expansion and a reinstatement of the 2021 Child Tax Credit expansion, bringing the total cost to $264 billion in 2026.
Figure 3 provides these estimates in more detail and illustrates why the megabill costs considerably more than simply extending the tax breaks that would otherwise expire at the end of this year and why the alternative shown here would cost even less.
FIGURE 3
Revenue Impact in 2026 of Approaches to Tax Provisions in More Detail
| Extend Tax Provisions Expiring End of 2025 | Newly-Passed GOP Megabill | Potential Alternative Approach | |
|---|---|---|---|
| Tax Cuts and Jobs Act Provisions Expiring End of 2025 | Extend | Extend and Modify | Extend for <$400k |
| Rates and Brackets | -$200 billion | -$204 billion | -$154 billion |
| Standard Deduction | -$108 billion | -$117 billion | -$108 billion |
| Personal Exemptions | +$153 billion | +$147 billion | +$153 billion |
| Child Tax Credit | -$84 billion | -$89 billion | -$84 billion |
| Pass-Through Deduction | -$78 billion | -$79 billion | -$26 billion |
| Alternative Minimum Tax | -$142 | -$142 billion | -$76 billion |
| Itemized Deductions | +$146 | +$103 | +$126 billion |
| Estate Tax | -$20 billion | -$20 billion | $0 |
| Recapture Benefits in Lower Brackets | $0 | $0 | +$40 billion |
| Total 2017 Provisions Expiring End of 2025 | -$334 billion | -$402 billion | -$129 billion |
| Extend the Expansion of Health Care Credits Expiring End of 2025 | -$21 billion | $0 billion | -$21 billion |
| New Provisions Proposed as Middle-Class Tax Cuts | None | New GOP Tax Breaks | Child Tax Credit Expansion |
| Deduction for Tips | $0 | -$10 billion | $0 |
| Deduction for Overtime Pay | $0 | -$23 billion | $0 |
| Enhanced Deduction for Seniors | $0 | -$20 billion | $0 |
| Exclusion for Car Loan Interest | $0 | -$6 billion | $0 |
| Credit for Funding Private School Vouchers | $0 | $0 | $0 |
| Reinstate 2021 Child Tax Credit Expansion | $0 | $0 | -$113 billion |
| Total New Provisions Proposed as Middle-Class Tax Cuts | $0 | -$58 billion | -$113 billion |
| Business Tax Breaks (excluding pass-through deduction in 2017) | None | New GOP Tax Breaks | None |
| Reinstate bonus depreciation | $0 | -$65 billion | $0 |
| Reinstate research expensing | $0 | -$20 billion | $0 |
| Reinstate more generous limits on deductions for interest | $0 | -$6 billion | $0 |
| New international corporate rules | $0 | -$19 billion | $0 |
| Special depreciation allowance for qualified production property | $0 | -$34 billion | $0 |
| Section 179 small business expensing expanded | $0 | -$4 billion | $0 |
| Extension and modification of clean fuel production credit | $0 | -$2 billion | $0 |
| Extend and modify opportunity zones | $0 | -$8 billion | $0 |
| Expand advanced manufacturing investment credit | $0 | -$3 billion | $0 |
| Capital gains from farmland | $0 | -$3 billion | $0 |
| Total Business Tax Breaks | $0 | -$165 billion | $0 |
| Other Tax Provisions | None | None | |
| Repeal and phase out green tax provisions | $0 | +$37 billion | $0 |
| Limits on health care credits | $0 | +$14 billion | $0 |
| Strengthen limit on deductions for high compensation | $0 | +$1 billion | $0 |
| 1 percent floor on corporate charitable deductions | $0 | +$2 billion | $0 |
| Treatment of payments from partnerships to partners for property or services | $0 | +$2 billion | $0 |
| Punish companies of countries implementing global minimum tax | $0 | $0 | $0 |
| Total Other Tax Provisions | $0 | +$56 billion | $0 |
| TOTAL | -$355 billion | -$568 billion | -$264 billion |
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The first item on the list, extending and/or modifying the 2017 Trump tax law’s changes to income tax rates and brackets, is illustrative. Figure 3 shows that the first approach would extend these changes in income tax rates and income tax brackets, at a cost of $200 billion in 2026. The megabill’s provisions to extend these changes will cost slightly more, $204 billion, because they also modify the tax brackets. On the other hand, the alternative shown here would extend these changes for most Americans but would allow the rates to rise to their pre-Trump tax law levels for singles with taxable income of more than $400,000 and married couples with taxable income with more than $450,000, which limits the costs somewhat to $154 billion.
To take another example, in the first two approaches shown in Figure 3, the 2017 cuts in the estate tax would be extended at a cost of about $20 billion in 2026 but it would not be extended at all in the alternative.
FIGURE 4
Average Tax Changes Compared to Current Law in 2026 in the United States
| Income Group | Income Range | Average Income | Current Law | Trump Tax Law Extension Plus Extend Health Care Credit Expansion | Newly-Passed Megabill | Trump Tax Law Extension <$400k + Extend Health Care Credits + Expand CTC |
|---|---|---|---|---|---|---|
| Bottom 20% | $0 – $27,000 |
$15,200 | $0 | -$230 | -$40 | -$840 |
| Second 20% | $27,000 – $53,300 |
$39,700 | $0 | -$690 | -$610 | -$1,500 |
| Third 20% | $53,300 – $92,100 |
$71,000 | $0 | -$1,110 | -$1,510 | -$1,850 |
| Fourth 20% | $92,100 – $153,600 |
$121,000 | $0 | -$1,400 | -$2,320 | -$2,040 |
| Next 15% | $153,600 – $361,400 |
$219,200 | $0 | -$2,860 | -$5,190 | -$3,100 |
| Next 4% | $361,400 – $916,900 |
$530,400 | $0 | -$12,900 | -$17,940 | -$7,340 |
| Top 1% | $916,900 and above |
$2,710,000 | $0 | -$37,090 | -$66,080 | +$53,020 |
| Total U.S. | $128,200 | $0 | -$2,010 | -$3,010 | -$1,470 | |
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Figure 4 contrasts the average tax changes for different income groups under different approaches, including what would happen under current law, meaning what would happen if Congress had done nothing and our tax rules operated as written before passage of the megabill. Following current law would of course be no change at all, while extending the expiring 2017 tax provisions and the expiring Affordable Care Act provisions would provide some noticeable tax cuts to people (and would provide the largest tax cuts to the richest 1 percent who benefit vastly from the 2017 tax law.)
But the average tax breaks for middle-income people would be more generous under the alternative approach, which would provide the middle 20 percent of taxpayers with an average tax cut of $1,850 next year compared to an average tax break of $1,510 for this group under the megabill.
The alternative approach would also place an average tax increase of about $53,000 on the richest 1 percent. This would happen for two reasons. As already mentioned, this analysis assumes that the alternative approach would interpret the proposal to extend tax cuts for those making less than $400,000 in the way it was interpreted by the Biden administration and explained by a report from the Treasury Department. In Treasury’s description of the proposal, extensions of temporary tax cuts would be restricted for high-income people, but temporary tax increases in the 2017 law would be extended fully. The most significant of these tax increases is the cap on deductions for state and local taxes (SALT), which primarily affects the richest 1 percent.
Treasury also explained that the proposal would, in addition to allowing the top income tax rate to return to its earlier level, include a provision to “recapture” the benefits of rate reductions in the lower income tax brackets from high-income people.
Together, these provisions ensure that the richest households would pay more in taxes than they would under current law.
Some Congressional Republicans argue that their tax proposals should not be compared to current law, but rather to “current policy” which means lawmakers would assume that extending any temporary policy, no matter how much it would reduce revenue, has no cost. In other words, many Republican lawmakers want to assume that extending the expiring 2017 tax provisions that will otherwise expire will cost nothing.
Figure 5 presents the average tax cuts for different income groups under each approach to current policy. However, this analysis defines current policy in a way that is more consistent than the definition used by Senate Republicans. Specifically, we assume current policy includes extension of all the tax cuts expiring at the end of this year, including Affordable Care Act credits, whereas the Senate Republicans consider only those provisions created by the 2017 tax law to be current policy.
FIGURE 5
Average Tax Changes Compared to Current Policy in 2026 in the United States (tax changes compared to full extension of Trump Tax Law and ACA Credit Expansion)
| Income Group | Income Range | Average Income | Current Law | Trump Tax Law Extension Plus Extend Health Care Credit Expansion | Newly-Passed Megabill | Trump Tax Law Extension <$400k + Extend Health Care Credits + Expand CTC |
|---|---|---|---|---|---|---|
| Bottom 20% | $0 – $27,000 |
$15,200 | +$230 | $0 | +$190 | -$610 |
| Second 20% | $27,000 – $53,300 |
$39,700 | +$690 | $0 | +$80 | -$810 |
| Third 20% | $53,300 – $92,100 |
$71,000 | +$1,110 | $0 | -$400 | -$740 |
| Fourth 20% | $92,100 – $153,600 |
$121,000 | +$1,400 | $0 | -$920 | -$640 |
| Next 15% | $153,600 – $361,400 |
$219,200 | +$2,860 | $0 | -$2,330 | -$240 |
| Next 4% | $361,400 – $916,900 |
$530,400 | +$12,900 | $0 | -$5,040 | +$5,560 |
| Top 1% | $916,900 and above |
$2,710,000 | +$37,090 | $0 | -$28,990 | +$90,110 |
| Total U.S. | $128,200 | +$2,010 | $0 | -$1,000 | +$540 | |
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In other words, Figure 5 compares each approach to what would happen if Congress extended all the tax provisions expiring at the end of 2025.
Compared to current policy as defined here, the megabill would impose an average tax increase of $190 on the poorest fifth of Americans because the megabill’s tax cuts for this group would not be large enough to offset their loss of the expanded Affordable Care Act credit.
