Introduction
Economists anticipate that the tax cuts from President Trump’s “Great and Beautiful” Tax Law will serve as a crucial engine for the US economy in 2026, benefiting both individuals and businesses. Here are some details on what’s to come.
Individual Tax Changes
A series of adjustments to individual tax rates and exemptions are expected to boost household reserves by early 2026. This will be achieved through larger tax refunds during filing season and increased net income as wage withholding levels are adjusted to account for the changes.
- Permanent Reduction of Income Tax Rates: The law makes the reduced individual income tax rates set by Trump’s 2017 Tax Cuts and Jobs Act permanent, which were due to expire by the end of the year.
- Extended Standard Deduction: The standard deduction from the 2017 law is made permanent, and it’s expanded.
- Increased Alternative Minimum Tax Exemption: The minimum tax exemption is raised, providing relief for more taxpayers.
- Estate Tax Exemption Hike: The estate tax exemption increases from $14 million to $15 million.
Additional changes include:
- Tax-Free Income Exemption for Tips: Up to $25,000 in tip income is exempt from taxes until 2029. This gradually disappears for those earning over $150,000 and does not apply to all tips (e.g., automatic service charges in large restaurant groups or income from “adult entertainment” activities).
- Tax-Free Overtime Pay: Up to $12,500 in overtime pay is exempt from taxes until 2029. Similar to the tip income exemption, this gradually disappears for those earning over $150,000.
- New Deduction for Seniors: A $6,000 deduction is created for individuals aged 65 or older until 2029.
- Tax-Free Interest on Auto Loans: Up to $10,000 in interest payments for personal vehicle loans is exempt from taxes until 2029, applicable only to US-assembled vehicles.
- Increased State and Local Taxes (SALT) Deduction: The SALT deduction cap rises from $10,000 to $40,000 until 2029. This primarily benefits affluent homeowners in high-tax states like New York and New Jersey.
Business Tax Changes
The business tax adjustments primarily aim to provide incentives for companies to invest in their operations. This is achieved through the extension of lower tax rates and increased deductions for capital expenditures and research & development expenses.
Key Questions and Answers
- What is the “Great and Beautiful” Tax Law? It refers to the Tax Cuts and Jobs Act signed by President Trump in 2017, which included significant changes to individual and corporate tax rates, deductions, and exemptions.
- Who benefits from these tax changes? Both individuals and businesses are expected to benefit, with households seeing increased reserves and businesses receiving incentives for investment.
- What is the significance of these changes for the US economy? Economists believe that these tax cuts will stimulate economic growth in the US by 2026, encouraging consumer spending and business investment.
