A key economic priority for President Trump this year is to extend the provisions of his signature Tax Cuts and Jobs Act (TCJA), a 2017 law that reduced tax rates for most Americans, before they expire at the end of 2025. Now, Republican lawmakers have drafted a 50-page list of ideas on how to pay for these anticipated cuts.
The Congressional Republicans’ plan, published by The New York Times, outlines a menu of policy options for lawmakers to consider. The document also cites several new tax exemptions proposed by President Trump during his campaign last fall, such as eliminating taxes on overtime pay and tips.
However, extending the TCJA provisions alone could prove costly, as the Congressional Budget Office estimates a 10-year cost of $4.6 trillion.
Adding new tax exemptions, like Trump’s promise to eliminate taxes on overtime pay, could further increase the bill at a time when the nation’s debt has soared to over $36 trillion.
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Ideas and Methods
According to the document, some ideas to fund these tax cuts include eliminating the mortgage interest deduction, a popular benefit for homeowners, and the deductibility of student loan interest.
Other methods to raise more revenue include a 10% universal import tariff, essentially a tax on all U.S. imports that would be paid by consumers.
The plan also outlines ideas to cut federal spending, primarily by reducing payouts for safety net programs like Medicaid and food stamps.
Overall, the document points to a potential tax overhaul that could put more money in the pockets of wealthier Americans while cutting support for middle- and lower-income taxpayers, according to experts.
A 10% universal tariff could raise $1.9 trillion over the next decade, according to the document shared with Republican lawmakers. However, tariffs are largely paid by consumers, as businesses tend to raise prices to cover additional import duties.
Mr. Trump’s tariffs could add $2,600 per year in costs for the typical American family, according to an August analysis by the Peterson Institute for International Economics, a nonpartisan think tank focused on economic issues.
Tax Breaks That Could Disappear
Some long-standing tax exemptions could face elimination, according to the document:
- Mortgage Interest Deduction: This could be eliminated entirely or capped at $500,000, with the first option saving $1 trillion over a decade and the second saving $50 billion over the same period.
- Head of Household Filing Status: This status provides a larger standard deduction for single adults with children. Eliminating it could save $192 billion over 10 years.
- American Opportunity Tax Credit: This $2,500 tax credit is granted for educational expenses incurred during the first four years of higher education. Repealing it would save $59 billion over a decade.
- Child and Dependent Care Tax Credit: This credit helps families with young children pay up to $2,100 in annual childcare expenses. Repealing it would save $55 billion over 10 years.
- Student Loan Interest Deduction: Eliminating this deduction, used by individuals with student loan debt, could save $50 billion over 10 years.
- Lifetime Learning Credit: This non-refundable tax credit equals 20% of qualified tuition and related expenses under $10,000. Repealing it would save $26 billion over 10 years.
New Tax Breaks Under Consideration
The document also outlines several ideas to lower taxes, in addition to eliminating taxes on overtime pay and tips. These include:
- Eliminating the Estate Tax: This proposal would primarily benefit ultra-wealthy families, as the estate tax affects individuals with assets of nearly $14 million. Eliminating this tax would cost the U.S. $370 billion over 10 years.
- Raising or Eliminating the SALT Deduction Cap: Mr. Trump’s TCJA introduced a controversial $10,000 cap on the state and local tax (SALT) deduction. Under the latest Republican proposals, the cap could be eliminated or raised to higher thresholds, such as $20,000 for married couples. The cost could range from $100 billion to $1 trillion, depending on the scale of the change.
- Deducting Car Loan Interest: This idea, proposed by Trump during the 2024 presidential campaign, could cost $61 billion over a decade.
During last year’s campaign, Trump proposed eliminating the $10,000 cap on the SALT deduction, which he introduced in his 2017 tax bill.
The issue has become increasingly unpopular among both Republicans and Democrats, as rising home values and property taxes across the country mean more homeowners are feeling the pinch of the deduction limit.
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