On May 22, the United States House of Representatives enacted a comprehensive tax package, advancing legislation that may drastically alter the federal tax environment moving into the 2025 filing season. Supporters have dubbed the proposal "The One Big Beautiful Bill," and it now travels to the Senate, where its fate is uncertain due to party opposition.
The measure offers several extensions to the 2017 Tax Cuts and Jobs Act (TCJA), including the continuance of lower individual income tax rates and increased deductions for small businesses. Republicans claim that the proposal will provide significant tax relief to working Americans while maintaining economic momentum. Critics, however, fear that the plan might exacerbate the national deficit while unfairly benefiting higher-income households.
What’s In the Bill?
According to the House Ways and Means Committee summary (linked above), the bill contains:
- A permanent extension of the TCJA's lower individual income tax brackets.
- Maintaining the enhanced standard deduction.
- Extends the enhanced Child Tax Credit from the TCJA era (but not as large as the temporary 2021 expansion).
- Qualifying small businesses can take a permanent 20% deduction for pass-through business income under Section 199A.
- Proposed changes would reduce the $10,000 limit on state and local tax (SALT) deductions, a source of concern for several coastal states.
It does not contain any increases in corporation taxes, nor does it modify capital gains or estate tax limits. The Congressional Budget Office's nonpartisan forecasts anticipate that the law will cost about $4.5 trillion over a decade.
According to a CNBC report, House Ways and Means Chairman Jason Smith (R-MO) called the package "a win for every American who wants to keep more of what they earn." He went on: "We're delivering on the promise of pro-growth, pro-worker tax relief without raising taxes on anyone."
Senate Prospects Unclear
The bill's progress in the Senate is far from guaranteed. While Republicans are broadly supportive of the endeavor, Democrats have slammed the plan as fiscally unwise.
Some moderate Democrats, especially those from high-tax areas hit by the SALT deduction cap, have indicated a willingness to negotiate. However, any final plan will most certainly require major revision to secure the 60 votes required to clear the Senate.
Impact on Taxpayers
If passed, the plan will primarily maintain the current individual income tax rate structure, which will expire at the end of 2025. For the majority of middle-income Americans, this would prevent an automatic tax rise while preserving larger deductions.
Small business owners may also continue to benefit from the pass-through income deduction, which has been a key component of the TCJA's pro-business legislation. the National Federation of Independent Business said making Section 199A permanent is a "top priority" for its members.
Critics contend that the measure does not do enough for low-income earners and that its advantages are disproportionately concentrated in the highest income categories. Maya Mac Guineas, president of the Committee for a Responsible Federal Budget, cautioned that "extending these tax cuts without offsets is a recipe for long-term fiscal strain."
Political Timing
As the package proceeds to the Senate, talks are expected to heat up. Key holdouts, including several Senate Democrats and deficit hawks from both parties, may seek changes or offsets to gain their support.
Meanwhile, tax specialists and financial counselors are keenly monitoring the situation. Whether the law succeeds in its current form or not, the consequences will be significant for tax planning in 2025 and beyond.