Keith Mack
President Trump's Big Beautiful tax bill has been criticized for favoring the rich and adding to the national debt. The bill includes various tax breaks and cuts for the wealthy, such as the pass-through entity tax (PTET) loophole, increased thresholds for small business definitions, and higher SALT deductions. These changes will result in significant tax breaks for high-income households, with the top 1% receiving very large tax cuts. The bill also includes permanent extensions of the 2017 tax cuts, which were also skewed towards the rich. While lower-income households may receive some tax breaks, they will be largely offset by cuts to essential social welfare programs like Medicaid and SNAP, negatively impacting low-income families. The bill has been characterized as irresponsible, contributing to increasing deficits and national debt, while failing to address the country's underinvestment in critical areas.
| Characteristics | Values |
|---|---|
| Year | 2017 |
| Name | Trump Tax Law, "Big Beautiful" Bill, "One Big Beautiful Bill Act" |
| Aims | To incentivize investment in lower-income areas |
| Beneficiaries | Top 1%, 95-99th percentiles, households in the top 5%, investors in small businesses, taxpayers earning $1 million or more, wealthy households, ultra-rich, top 20% of households, top 10% of households, business owners, investors, entrepreneurs, taxpayers with capital gains |
| Losses | $646 million from the Federal Emergency Management Agency (FEMA), $545 million from the FBI, $491 million from the Cybersecurity and Infrastructure Security Agency (CISA), $468 million from the Bureau of Alcohol, Tobacco, and Firearms (ATF), $212 million from the Drug Enforcement Administration (DEA), $4 trillion from social safety net programs, $700 billion from Medicaid, $267 billion from SNAP |
| Effects | Increased national debt, cuts to healthcare, food assistance, and public safety programs, higher child poverty, increased deficits, increased corporate tax avoidance, higher taxes for parents paying for childcare |
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What You'll Learn
Trump's 2017 tax law
The 2017 tax law was promoted as a "middle-class miracle" and a "boon to ordinary Americans". However, it has been characterised as a ""trickle-down failure", with tax cuts failing to benefit workers with low and moderate incomes. In fact, the top 0.1% of US households saw their tax rates fall below that of the bottom 50% of earners. This was due to the law's provisions, such as the 20% pass-through deduction, which favoured wealthy business owners and shareholders.
The tax law's impact on revenue has been significant. The Congressional Budget Office (CBO) estimated a revenue loss of $1.9 trillion over ten years, with temporary individual income and estate tax cuts expected to cost an additional $350 billion annually from 2027 onwards. This has contributed to a decline in revenue as a share of GDP, which fell from 19.5% before the Bush tax cuts to 16.3% after the Trump tax cuts.
Furthermore, the tax law has been linked to a rise in wealth inequality. The collective fortune of America's 748 billionaires increased by $2.2 trillion (77%) following the enactment of the law, reaching a near-record high of over $5 trillion in September 2023. This has led to criticisms that the tax cuts were irresponsible and have contributed to rising wealth concentration among the ultra-rich.
In summary, Trump's 2017 tax law was skewed towards the rich, resulting in windfalls for wealthy individuals and corporations while failing to deliver significant benefits to low and middle-income families. The law's impact on revenue and wealth inequality has been substantial, leading to ongoing debates about tax fairness and the role of government in addressing these issues.
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Tax breaks for the ultra-rich
Trump's tax policies have been criticized for favoring the ultra-rich at the expense of working families and essential programs. The 2017 Trump tax law, for instance, was skewed towards the rich, offering large tax cuts to the top 1% and the 95-99th percentiles, while driving up deficits and national debt.
Trump's "big beautiful" bill or "Big Ugly Law" is another instance of legislation that benefits the ultra-wealthy. It gives massive tax breaks to the top 0.1%, amounting to $309,000 on average, while those earning less face tax hikes and cuts to essential services. The bill also preserves a loophole, allowing certain professionals to avoid the cap on state and local tax (SALT) deductions. The bill further incentivizes investments in small businesses, offering tax breaks to owners and investors, with the threshold for qualifying as a "small business" increased from $50 million to $75 million.
The impact of these tax breaks for the ultra-rich extends beyond revenue loss. The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) found that the bill worsens inequality, with working families experiencing a net loss in resources while the ultra-rich benefit. This dynamic is further exacerbated by the bill's cuts to essential programs, including healthcare, nutrition assistance, and public safety.
The House Republican reconciliation bill is another piece of legislation that heavily favors the wealthy. It offers huge tax breaks to wealthy individuals, businesses, and large corporations, while providing minimal relief to working families and raising costs for essential services like healthcare.
The cumulative effect of these tax breaks for the ultra-rich contributes to growing inequality and places a greater burden on working families, who are left to shoulder the cost of essential services and programs that are vital for their well-being.
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Cuts to social welfare programs
The 2017 Trump Tax Law has been criticized for providing tax cuts for the rich while cutting social welfare programs that aid working families. The law delivered the largest average tax cut to households in the 95-99th percentiles, with the top 1% receiving very large tax cuts. These tax cuts disproportionately benefit high-income and high-wealth households, with the top 5% of households receiving 40% of the individual tax cuts and more than half of the corporate tax cuts in 2018.
The Trump Tax Law has been criticized for prioritizing tax cuts for the wealthy over investing in social welfare programs. The law has been described as "irresponsible" given the underinvestment in critical areas such as healthcare, rising healthcare costs, and potential national security threats. The law is estimated to cost approximately $3.9 trillion from 2026 to 2035, requiring significant funds to service the resulting debt.
To offset the cost of tax cuts, there have been proposals to cut spending on social welfare programs, including healthcare, food assistance, and income support. These cuts would likely fall on programs such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI), and Temporary Assistance for Needy Families (TANF). Such cuts could have detrimental effects on families, increasing their expenses and risking housing instability and homelessness.
For example, cuts to Medicaid could leave more people uninsured or unable to access critical healthcare services. Similarly, reductions in SNAP benefits could increase food insecurity and negatively impact the health and development of children. The proposed cuts to social welfare programs would disproportionately affect working families, making it more challenging for them to meet their basic needs.
In addition to the direct impact on families, cuts to social welfare programs can have broader economic implications. For instance, investments in children from low-income families through programs like SNAP have been shown to improve their health and educational outcomes, benefiting the nation as a whole. Therefore, cuts to these programs could hinder the development of the nation's future workforce and long-term economic productivity.
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Tax cuts for small businesses
The Trump administration's 2017 tax law has been criticized for being skewed in favor of the rich. The law provided the largest average tax cut to households in the 95-99th percentiles, with the top 1% receiving very large tax cuts. These tax cuts for the wealthy come at the expense of programs and services used by everyday families, including healthcare, food assistance, and public safety.
However, the Trump tax cuts also included provisions that benefited small businesses. The "One Big Beautiful Bill Act," as it has been dubbed, is considered one of the most pro-small business pieces of legislation in recent history. It raises the threshold for qualifying as a "small business" from $50 million to $75 million in total assets and increases the exclusion for capital gains taxes from $10 million to $15 million. This encourages investments and the creation of small companies. The bill also includes changes to the small business estate tax, itemized deductions, and charitable deductions.
Small business owners have testified about the need for tax relief and the potential negative consequences of losing the 20% small business deduction. It is estimated that small businesses would boost GDP by $150 billion annually if the Trump tax cuts were extended.
Overall, while the 2017 Trump tax law has been criticized for favoring the rich, it also included provisions that provided tax cuts and benefits to small businesses, which are expected to have a positive impact on the economy.
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Corporate tax avoidance
The 2017 Trump Tax Law has been criticised for its benefits to the wealthy and for enabling corporate tax avoidance. The law cut the federal corporate income tax rate from 35% to 21%, but in its first five years, profitable corporations paid much less than that due to loopholes and special breaks. In 2020, 55 large corporations avoided paying any federal corporate income taxes, despite substantial pre-tax profits in the US. This trend of corporate tax avoidance has continued for decades, with companies finding ways to shelter their profits from federal income taxation.
The Trump Tax Law also included a popular loophole that allowed pass-through owners and partners to avoid the cap on state-level taxes. This benefited various industries, including car dealers, dentists, accountants, and lawyers. Additionally, changes to qualified small business stock (QSBS) encouraged investments and the creation of small companies, with owners or investors exempt from capital gains taxes up to $10 million.
The corporate tax cuts in the 2017 law were heavily tilted towards wealthy individuals and corporations. In 2018, the top 5% of households received 40% of the individual tax cuts and more than half of the corporate tax cuts. The top 1% received 36.2% of the corporate provisions, further emphasising the skewed nature of the tax law.
To address corporate tax avoidance, the Biden administration has implemented reforms such as the corporate minimum tax and expanded tax enforcement funding. Additionally, the global minimum tax negotiated with other governments aims to clamp down on offshore tax dodging by corporations. States can also play a role in reducing corporate tax avoidance by implementing policies like "worldwide combined reporting", which treats parent corporations and their subsidiaries as a single integrated economic enterprise for tax purposes.
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Frequently asked questions
The "Big Beautiful" bill, also known as the "One Big Beautiful Bill Act", is a tax and spending package introduced by House Republicans and signed into law by President Trump.
The bill provides significant tax breaks for the wealthy, including permanent extensions of the 2017 tax cuts and new tax breaks such as no taxes on tips and a "senior deduction". It also raises the threshold for qualified small businesses, resulting in increased tax breaks for investors.
Lower-income households may experience a mix of benefits and drawbacks. On the one hand, the bill offers tax breaks for lower earners and provisions like a higher standard deduction and enhanced child tax credit. However, these benefits may be offset by cuts to social welfare programs such as Medicaid, SNAP (formerly food stamps), and student loan benefits.
According to the Tax Policy Center, about 60% of the tax cuts from the bill would go to the top 20% of households, and more than a third would benefit those earning $460,000 or more. Other estimates suggest that nearly 60% of the tax benefits would go to those in the top quintile of annual incomes, with average tax cuts of $12,500.
The bill's tax cuts for the wealthy are offset by steep cuts to social welfare programs, including Medicaid, SNAP, and Affordable Care Act premiums. These cuts could negatively impact lower-income households that rely on these programs.
