15 Jul What tax benefits does Trump’s budget law offer?
By,
Leonardo Morales, Senior Fellow MSI²
The new law, the One Big Beautiful Bill Act, introduced by President Donald J. Trump and the Republicans, represents the greatest fiscal impact for the majority of Americans.
As part of the promises made by President Donald J. Trump during his election campaign, the United States Congress succeeded in passing the major budget project with the proposals and amendments put forth by Republicans in both chambers.
Few Democratic representatives—and not a single senator—voted for this plan, which has now become law: the One Big Beautiful Bill Act.
The new law represents the greatest fiscal impact for the vast majority of Americans, while the far left attempts to downplay or intimidate citizens with healthcare coverage issues. It is yet another desperate partisan campaign from the Democratic opposition.
No one is talking anymore about the economic recession that Trump’s policies were supposed to cause, nor about the “Third World War” (the same rhetoric used during the Republican leader’s first term), or the anticipated rise in inflation due to tariffs.
The far-left discourse and its manipulation of information have collapsed on their own in less than six months.
Trump’s New Law
Gas prices have dropped to their lowest level in the past four years. The sharp increase in the prices of almost all products—especially food—has been halted. Some items, such as milk, have decreased in price, while the chairman of the Federal Reserve remains determined to keep the benchmark interest rate high, despite having lowered it three times before the presidential elections during Joe Biden’s administration.
Weeks ago, rumors circulated in Washington and in the media about Jerome Powell’s resignation as head of the Federal Reserve, but in the end, Powell remains in his position.
During his most recent meeting with the full cabinet, Trump told reporters that the actions taken by the head of the Central Bank before the elections seemed like a favor to Kamala Harris and the Democrats, and that the same is not happening under his administration.
The Central Bank, or Federal Reserve (Fed), had been an independent and nonpartisan entity until Joe Biden’s presidency, but favorable actions toward the previous administration signaled that the institution’s status had changed, at least perceptibly.
Nevertheless, since February, Trump and the Republicans have focused on passing the federal budget, a decisive step for the White House and its most immediate plans.
Thanks to the White House’s new budget law, households across the country will have an average of $13,000 more annually in income or savings; more than 4 million jobs will be created, and unprecedented tax relief in the nation’s history will be provided for all Americans, including retirees and senior citizens who are still in the workforce.
Before becoming President, many saw the promise of zero taxes on tips and overtime hours as mere political rhetoric and campaign talk. Today, those promises are a reality and have a direct impact on the working class, the middle class, small business owners, and retirees.
Below are the main tax changes that take effect following the approval of the One Big Beautiful Bill Act.
Tips and overtime
Regarding tips, the new legislation provides a $25,000 deduction for individuals earning less than $150,000 a year, and for married couples earning less than $300,000.
The benefit will be seen when the next tax return is filed. It applies to people with jobs that regularly receive tips in the service and tourism sectors, and who have a valid Social Security number.
In recent years, with the worst inflation in five decades caused by the Joe Biden administration and its failed economic policies, millions of people have had to work two or three jobs to cover their basic expenses, such as housing, food, transportation, insurance, medicine, etc. Others were able to rely on overtime, but at a very high cost in taxes at the end of the year.
One of the most important changes in the finances of American workers is the decision to eliminate taxes on overtime.
The measure works similarly to the tip tax deduction, equivalent to $12,500 for those earning less than $150,000 annually.
These deductions apply only to the three income taxes commonly paid: Social Security, Income Tax, and Medicare.
That is, the deductions for the remaining two are excluded from this measure because they are fixed for each American’s retirement income.
State tax and categories
Among the new sections of the law, there is one that has sparked great interest, especially in states with state taxes and where they have increased substantially in recent years.
Currently, state and local taxes are capped at $10,000 nationwide, but Republicans raised it to $40,000. This decision greatly benefits people living in states with high state and local taxes, such as California, New York, Illinois, and New Jersey, all governed by Democrats.
Another significant change under the Trump administration is the reduction of the “Tax Bracket,” the percentage of taxes paid based on annual income.
This is the phase in which the federal government will stop collecting a larger amount of money from taxpayers, a move the President hopes to offset with trillions of dollars in tariffs, increased exports, and a high level of investment in the country, which is expected to be the largest in modern history.
It is estimated that for the remainder of 2025, without including the largest taxes, the government will collect more than $300 billion, just from the agreements signed so far or those likely to be finalized in the coming weeks.
The tax cut is an extension of the one signed in 2017 during Trump’s first term, which was set to expire in 2025. Had the President’s budget law not been passed, these taxes would have risen to the levels prior to the Republican leader’s first term.
Now, all Americans will pay less tax, as part of this extension through the One Big Beautiful Bill Act.
The 39% tax bracket was reduced to 37%, the 25% bracket was lowered to 22%, and the 15% bracket was lowered to 12%.
Another tax benefit of this law is the standard deduction, which 90% of people use on their annual tax returns.
For 2025, the standard deduction for a single taxpayer is $15,000. It has now increased to $15,750.
For married taxpayers, the standard deduction will now be $31,500, and for someone filing as head of household, the deduction is $23,625.
Had this budget not been passed, the old law—set to expire in 2025—would have reverted the deductions to their previous levels, representing half of the current rate. That is, from $15,000, under the new law, the deduction rate would have been only $6,350.
Credit for children and senior citizens
Another major benefit this law provides is for parents with children under 17 in their custody or as part of the household. This is called the Child Tax Credit (credit for children under 17 who are dependent on their parents ‘ tax return).
Currently, this credit is $2,000. It now increases to $2,200.
Initially, Trump wanted to increase it to $2,500, but only temporarily between 2025 and 2028.
From now on, it will be $2,200, but with no expiration date; that is, permanently, and it applies to people earning less than $200,000. If income is higher than that amount, the credit begins to phase out and is adjusted based on the amount of money the individual or couple earns each year.
Had President Trump’s bill not passed, the credit for children under 17 would have reverted to what it was before: just $1,000.
Another relevant point in the law is the impact on seniors, those over 65.
One of Trump’s promises was to eliminate the tax on Social Security payments, but the proposal failed to pass Congress as part of the package and was amended. However, Republicans sought an alternative: an additional $6,000 deduction.
Currently, a person over 65, still working, with an annual income of $50,000 in 2025, takes the standard deduction of $15,750, plus the $2,000 deduction for their age (an existing deduction), and, additionally and newly, another $6,000 deduction, approved by the U.S. Congress under the proposal of the Republicans and President Donald Trump. In the end, that person would pay taxes on only $26,250.
Vehicle purchase and investment account for children
Another measure within the One Big Beautiful Bill Act addresses taxes on new vehicle interest, a new deduction of up to $10,000. It works as follows:
If you purchase a vehicle manufactured or assembled in the U.S. in 2025, regardless of whether the brand is American or not, such as Toyota, Nissan, etc., and you take out a loan to purchase that car, the interest on that loan can be deducted up to a limit of $10,000. You qualify if your income is less than $100,000 annually, and for people who use the standard deduction.
The big novelty of this law lies in the savings and investment account that the government will automatically create for all children born in the country between 2025 and 2028.
Without parents or anyone else having to do anything, these newborns will have an account in which the federal government will deposit $1,000. This money will be invested in the stock market and will grow every year. When the child turns 18, they will be able to withdraw all those earnings for investments, college education, or to start a business. Parents and relatives will also be able to contribute to this account, up to a limit of $5,000 per year.
The most significant aspect of the law signed by Trump is that it also grants significant benefits to small and medium-sized business owners, with a wide range of details yet to be announced.
It is very useful to know that the Internal Revenue Service (IRS) announced that, starting September 30, 2025, all tax deduction refunds will be issued digitally. In other words, the issuance of checks as a method of refund, as was previously the case, will be eliminated. The only way to do so as of this date is by direct deposit into your bank account, so all correct taxpayer information is required so the IRS can do it quickly and accurately.
People who owe money to the IRS and until now preferred to send a paycheck or money order will no longer be able to do so after September 30. The only way to do so will be through a direct deposit into the IRS account or through monthly collection of the money owed from the debtor’s or taxpayer’s personal account.
These are the main benefits of Trump’s new budget law, but there are more. These advantages for Americans are solely fiscal. This is one of the reasons why President Donald J. Trump called it the One Big Beautiful Bill Act.
Sources
The Financial Times, The Wall Street Journal, The New York Times, New York Post, The Western Journal, Newsmax, Fox News
The opinions expressed in this article are those of the author and do not necessarily reflect the views of the Miami Strategic Intelligence Institute (MSI²).