Penn Wharton updated their budget analysis of the House bill as it now stands.
Please consider the Penn Wharton Budget Model updated May 20, 2025.
Chart Notes
- To make the above chart, I added the primary deficit line from the Penn Wharton Deficits Effects chart to the Penn Wharton Revenue Effects chart. The yellow highlights are mine.
- The chart shows the impact if the changes were made permanent. Recall the TCJA was supposed to expire this year. It won’t. Republicans are calling that expiration a tax hike, and will do the same with new tax breaks on scheduled to expire in 2029. Expiring breaks was a gimmick used to pass the 2017 TCJA and the same gimmick (to understate the deficit) is used again.
- Penn Wharton calculates the deficits at $3.175 trillion in the current legislation as written. That includes several temporary tax provisions and spending increases set to sunset (expire) within a few years of enactment.
New Individual Tax Provisions
- Limit itemized deductions: The bill institutes a new limit on itemized deductions beginning in tax year 2026. This limitation applies to filers with taxable income that exceeds the 37 percent ordinary rate threshold for their filing status and reduces the allowable itemized deductions by 2/37 of the amount by which taxable income exceeds this threshold (or the total amount of itemized deductions, whichever is smaller).
- No tax on tips [*]: The bill provides a temporary deduction for qualified tip income, available to all filers regardless of itemizing status, beginning in tax year 2025. The bill sets general guidelines for forthcoming regulations governing what constitutes qualified tip income. These guidelines are intended to limit the occupations for which tipped income will qualify for the deduction. The deduction is limited to non “highly compensated employees,” generally individuals making less than $160,000 per year in 2025 dollars. This deduction ends after 2028 in the actual legislation but is modeled as permanent herein.
- No tax on overtime [*]: The bill provides a temporary deduction for the bonus amount of eligible overtime pay, available to all filers regardless of itemizing status, beginning in tax year 2025. The deduction only applies to overtime covered by the Fair Labor Standards Act, and is limited to non “highly compensated employees,” like the tip income deduction. This deduction ends after 2028 in the actual legislation but is modeled as permanent herein.
- Additional deduction for seniors [*]: The bill provides a new temporary bonus deduction for all individuals who have attained the age of 65. This deduction is $4,000 per individual and phases out at a rate of 4 percent of AGI over $150,000 for married taxpayers filing jointly, or $75,000 for all other filers. This deduction is available to all qualifying taxpayers regardless of filing status beginning in tax year 2025, and it expires after 2028 in the actual legislation but is modeled as permanent herein.
- No tax on auto loan interest [*]: The bill provides a temporary deduction for qualified passenger vehicle loan interest beginning in 2025. The bill outlines several restrictions on what constitutes qualified auto loan interest. It also limits the total deductible amount to $10,000 per year, or 20 percent of the taxpayer’s AGI more than $100,000 ($200,000 for married taxpayers filing jointly), whichever is lower. This deduction expires after 2028 in the actual legislation but is modeled as permanent herein.
- Charitable deduction for non-itemizers [*]: The bill provides a temporary deduction for charitable contributions, available to non-itemizers. This deduction is limited to $300 for married taxpayers filing jointly, and $150 for all other filers. It is available beginning in tax year 2025 and expires after 2028 in the actual legislation but is modeled as permanent herein.
- Permanently increase the SALT deduction cap to $30,000: In the 2017 TCJA, the previously unlimited individual state and local tax (SALT) deduction was capped at $10,000, meaning itemizers could only claim a maximum of $10,000 of their state and local tax liability as a deduction. This bill provides a permanent new SALT deduction cap of $30,000. This cap phases out at a rate of 20 percent of adjusted gross income over $400,000, to a minimum cap of $10,000.
Instead of simplifying the tax code, Trump sloshed around more favors trying to buy votes.
Deficit Effects: Conventional and Dynamic
The total conventional-basis cost of legislation of $4,806 billion over 10 years. Including dynamic effects does not reduce the legislative costs despite small, positive increases in GDP over the first decade.
The actual savings from economic growth do not appear until 2033 and 2034 and are not enough to overcome higher costs in earlier years in the 10-year budget window. After 2033, the dynamic costs fall relative to conventional, a difference which persists until 2054.
Key Points
- We consider an illustrative scenario where tax and spending provisions approved by the House Ways and Means Committee are made permanent, which we estimate will increase primary deficits by $5,804 billion ($5.8 trillion) over 10 years. Three other Committees increase primary deficits by another $606 billion. These changes are partly offset by spending cuts of $1,604 billion, for a total conventional cost of $4,806 billion.
- Despite increasing debt by 11.1 percent in 10 years and 24.3 percent in 30 years, GDP remains mostly flat, eventually slightly rising by 0.2 percent in 30 years. The average wage falls by between 0.5 to 0.6 percent over the next 30 years. Primary deficits are higher than conventional — rising to $4,947 billion — in the budget window when accounting for economic dynamics, due to microeconomic responses and compositional effects described in the brief.
- The lack of fall in GDP despite higher debt is partly driven by improvements to investments as well as increases in savings and labor supply, as households face a weaker social safety net associated with reductions in spending. On a conventional basis, households in the first income quintile lose about $940 in 2026, reflecting net reductions in taxes and transfers, including cuts to Medicaid and SNAP. The top 10% of the income distribution receives about 65 percent of the total value of the legislation. (Under current law, the top 10 percent of the income distribution pays about 70 percent of all federal taxes).
- On a dynamic lifetime basis, lower-income households are worse off, with losses averaging $30,000 in lifetime value for the lower-income working-age population. All future households are worse off, including those who enter the economy with relatively higher productivity.
Trump Threatens to Oust Republicans
Please note that to get this budget monstrosity passed, Trump Threatens to Oust Republicans Who Want to Cut SALT and Medicaid
Trump finally took a fiscal stand. It’s with Democrats.
Instead of uniting Republicans to reduce the deficit, Trump says Rep. Thomas Massie (R., Ky.) should be “voted out of office.”
And look at Johnson who repeatedly took off the table the idea of cutting back on the share the federal government contributes to Medicaid.
Also note, Trump Blasts Walmart on Price Hikes, Sounds Just Like Elizabeth Warren
Republicans should be seriously embarrassed by Trump.
King Deal is not interested in making deals.
For more on King Deal, please see Hoot of the Day: Trump Threatens a Return to Reciprocal Tariffs
We’ve gone from 200 deals “100%” to threats of returning to reciprocal tariffs if countries don’t deal.
Trump wants to command people and the markets to bow to his wishes, even to the point of sounding like Elizabeth Warren. How embarrassing.