President Donald Trump calls for his own “big beautiful bill.” This legislation is designed to deliver even bigger tax breaks for rich Americans, and to expand upon the tax cuts given in the 2017 Tax Cuts and Jobs Act. It’s likely that this new legislation will make most, if not all, of those tax cuts permanent. It will expand upon existing benefits targeted explicitly at high-income earners.
Here is the biggest provision of the bill. And it further raises the already exorbitant cap on state and local tax (SALT) deductions. Currently set at $10,000, the cap will increase to $40,000 for single filers making less than $500,000 per year. To adjust for inflation, this income threshold will increase by 1% annually. This adjustment allows more taxpayers to benefit from a considerably larger deduction in the years to come.
Taxpayers making $1 million or more will see an average after-tax income increase of nearly 3%. This amendment is expected to take effect in early 2024. That translates into an average projected increase of over $75,000 each for the richest Americans by 2026. These provisions are in keeping with Trump’s long-standing devotion to supply-side tax reform, freely sprinkling the fairy dust of economic growth on the affluent.
As noted, the proposed bill changes how charitable contributions are treated for high-income taxpayers. Specifically, this plan raises new barriers on itemized deductions. It establishes a floor of 0.5% of adjusted gross income for itemized charitable deductions. This change will have a huge impact on taxpayers that previously benefited from itemized deductions. They relied on these deductions to help them earn taxable income.
This would raise the standard deduction, which is currently $15,000 for single filers and $30,000 for joint filers, by $5,000. After the 2017 tax cuts went into effect around 90% of taxpayers ceased to itemize their taxes. A secondary effect of the doubled standard deduction was to make claiming charitable deductions less attractive.
Specifically, the bill expands and liberalizes the existing exemption from capital gains taxes. Besides, it recently doubled the exemption to $15 million per estate ($30 million for married couples). This exemption will be indexed for inflation, so it will maintain its value over the years. Investors can make qualified small business investments from $500,000 up to $74.9 million. If the business appreciates to a value over ten times its original basis, they get to pocket nearly $749 million free from capital gains taxes.
Under this proposal, a “small business” would be defined broadly as any business that has total assets of $50 million or less. Clarifying this definitional distinction could help spur additional investment in smaller companies. Justin Miller remarked on this aspect of the bill, stating, “It’s encouraging wealthy investors in qualified small businesses with enormous potential.”
Experts have pointed to another significant concern with the Senate version of the bill. They add that it does not appear to impose any restrictions on the loopholes that are still accessible to wealthy taxpayers. Kyle Pomerleau noted, “The Senate version has no limitation on the workarounds,” suggesting that this could further amplify the benefits afforded to high-income individuals under the proposed changes.
Conversations about this exciting legislation are already starting to ramp up. Americans are clamoring to find out how these tax breaks will affect no less than wealthy taxpayers and the overall economy. Proponents claim that these policies will ignite new investment and create new jobs. In the other corner, critics argue they increase income inequality and are fiscally irresponsible.