Who benefits from Trump Tax Cuts and Jobs Act extension

As Congress debates how to handle trillions of dollars in expiring tax breaks, lawmakers on both sides have been lobbing claims about which consumers will see the biggest benefits from extending them. Economists and tax experts say the answer isn’t so straightforward.

In short: who benefits depends on your frame of reference.

House Republicans passed a budget plan Tuesday that lays the groundwork to extend the Tax Cuts and Jobs Act, a package of tax breaks enacted in 2017 during President Donald Trump’s first term.

Many of the cuts for individual taxpayers will expire after 2025 unless Congress acts — and the GOP can do this with a simple majority vote in Congress by using a special legislative maneuver called budget reconciliation.

Rep. Richard Neal, D-Mass., ranking member of the House Ways and Means tax committee, said Wednesday that Republicans’ policy plan — central to which is an extension of the Trump tax cuts, estimated to cost more than $4 trillion — amounts to a “reverse Robin Hood scam” that gives to the rich and takes from the poor.

Meanwhile, Republicans say low- and middle-income households stand to win under the plan.

“Extending the Trump tax cuts delivers the biggest relief to working-class Americans and small businesses in a generation,” Rep. Jason Smith, R-Mo., chairman of the Ways and Means Committee, said Tuesday.

Experts say both sides’ arguments have merit.

“The interesting thing is both can be true, depending on how you interpret what they’re saying,” said James Hines, a law and economics professor at the University of Michigan and research director in its Office of Tax Policy Research.

The Tax Cuts and Jobs Act lowered taxes for most U.S. households, experts said.

The legislation was broad, benefiting Americans across the income spectrum — which is broadly consistent with Republicans’ claims, they said.

Changes like a larger child tax credit and an expanded standard deduction cut income taxes for many low and middle earners, while lower marginal tax rates and tax deductions for business owners largely helped the wealthy, experts said.

If TCJA provisions are extended, 62% of tax filers would see lower tax bills in 2026, compared with if the measures expire, according to the Tax Foundation. (Put another way, many people’s tax bills would increase next year without an extension.)

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With those provisions in place, Americans would get a 2.9% boost in income after taxes in 2026, on average, according to the Tax Foundation. Income would rise by 3.4% if factoring in broader impacts of the tax cut on the U.S. economy, it said.

A U.S. Treasury Department report issued in the waning days of the Biden administration had a similar finding: The average person would get a 2.2% tax cut by extending the Trump law. (Its estimate is for the 2025 budget year.)

All income groups would get a boost in after-tax income, the Treasury said.

However, with an extension, the largest tax cuts would accrue to the highest-income families, the Treasury said.

Household in the top 5% — who earn more than $450,000 a year, roughly — are the “biggest winners,” according to a July 2024 analysis by the Urban-Brookings Tax Policy Center. They’d get over 45% of the benefits of extending the Tax Cuts and Jobs Act, it said.

A Penn Wharton Budget Model analysis on the impacts of the broad Republican tax plan had a similar finding.

The bottom 80% of income earners would get 29% of the total value of proposed tax cuts in 2026, according to the Wharton analysis, issued Thursday. The top 10% would get 56% of the value, it said.

This dynamic speaks to Democrats’ arguments, especially when coupled with possible spending cuts for programs like Medicaid and food stamps. Such programs largely benefit lower earners.

Wharton estimates that the combination of tax cuts and spending reductions for programs like Medicaid and food stamps would leave “low-income households worse off,” even after accounting for economic growth.

Some tax analysts view after-tax income as among the best frames of reference to assess policy impact, because it estimates how much a household’s buying power improves. Others disagree, however, saying it’s hard to control for other economic variables that might alter income.

The top 1% of households (who make about $1 million or more a year) would get a 3.2% boost in after-tax income in 2027 via an extension of the Trump law, the Tax Policy Center said. In dollar terms, their tax savings would be about $70,000, on average.

By comparison, middle-income households, would get a 1.3% income boost, or a $1,000 tax cut, according to the Tax Policy Center.

In a sense, this dynamic is to be expected because the U.S. income tax system is progressive, experts said. That means high earners generally shoulder more of the overall tax burden than low earners.

“If you ask, ‘Who gets the dollars,’ it’s mostly rich taxpayers,” said Hines of the University of Michigan. “But that’s because it’s a tax cut and they pay most of the taxes.”

The top 1% paid 40% of all U.S. income taxes collected in 2022, according to a recent Tax Foundation analysis. The bottom 90% paid about a quarter — 28% — of total income tax.

“Democrats say most of the tax dollars went to the rich: They’re absolutely correct,” Hines said.

However, the TCJA cut taxes more for working families than rich families on a proportional basis, a White House spokesperson said.

Experts agreed with that assessment.

“Republicans say, ‘But the cuts were not slanted to the rich compared to how much people were paying originally,'” which is also generally correct, Hines said.

For example, the bottom 50% of Americans saw their average federal tax rate fall by 15% from 2017 to 2018, after the Trump tax cut took effect, according to the Tax Foundation. (Their rate dropped to 3.4% from 4%.)

By contrast, the top 1% saw their average rate decline by a lesser percentage (about 5%) during that period, to 25.4% from 26.8%.

“The reason why the debate is so fractured is there are elements of truth to both sides,” said Garrett Watson, director of policy analysis at the Tax Foundation. “It’s a battle of metrics, and what weight to place on each of them.”