As the One Big Beautiful Bill Act (OBBBA) faces a critical test in the Senate, opponents are pointing to a Congressional Budget Office (CBO) analysis to claim that the legislation will disproportionately help the richest Americans. Dont buy it. The truth is that taxpayers at lower income levels are some of the biggest winners of the tax provisions in the reconciliation bill, to say nothing of the energy, education, and other policy reforms.
The core of the OBBBA is the extension of the tax relief provisions of the 2017 Tax Cuts and Jobs Act (TCJA). Coupled with the first Trump administrations deregulation agenda, the TCJA produced a historic blue-collar boom, with the lowest wage earners taking home the largest wage gains.
Shortly after the OBBBA cleared the House, however, the CBO wrote to congressional leaders that the bill would put more money in the pockets of the richest taxpayers while leaving the poor and working-class Americans worse off. The estimate ignores the track record of the TCJA and is based on flawed analysis.
For starters, the CBO overlooks seven years of data showing that the TCJA made the tax code more progressive. Before the TCJA, the top income earners contributed 38.5% of total federal tax receipts. According to the IRS, that amount increased to 40.4% after the TCJA.
This was no accident. Lower-income earners received a disproportionately larger share of the tax relief in the TCJA. Before the TCJA, the top 20% of taxpayers were projected to cover 67% of federal tax receipts. But the same taxpayers received only 65% of the tax bills benefits. In short, the richest taxpayers picked up a larger share of federal taxes.
The TCJA delivered tax relief to working Americans by reducing individual rates and expanding targeted tax deductions. The 2017 legislation dropped the lowest four tax brackets from 10%, 15%, 25%, and 28% to 10%, 12%, 22%, and 24%, respectively. It also doubled the standard deduction – the amount taxpayers can subtract automatically from their taxable income – from $6,500 to $12,000 for single filers and $13,000 to $24,000 for taxpayers who are married filing jointly.
Taxpayers earning less than $100,000 have been the primary beneficiaries of the higher standard deduction. Pre-TCJA, more than 40% of Americans who earned between $50,000 and $75,000 and nearly 60% of Americans who earned between $75,000 and $100,000 itemized their deductions. Post-TCJA, almost 90% of taxpayers in the $50,000 to $100,000 range take the standard deduction.
The increased standard deduction has helped lower-income Americans because many of the itemized deductions are the exclusive province of the wealthy, like the ability to deduct interest on up to $750,000 of mortgage debt. The Progressive Policy Institute – although no fan of the TCJA as a whole – has proposed a permanent expansion of the standard deduction to distribute tax benefits more equally across income levels. The OBBBA builds on the TCJAs working-class tax relief by increasing the standard deduction to $26,000 for families and $13,000 for individual taxpayers. The Senates proposal would make permanent the larger standard deduction.
Back in 2017, the CBO badly underestimated the broad-based growth that the TCJA delivered. It hasnt learned from its errors. The big problem with the groups analysis is that it mistakes the tax code for a welfare program. The CBO looks at the effect of the bill on federal taxes as well as cash transfers and other federal benefits.
But what matters is how much Congress reduces the tax burden on working Americans, not whether Congress increases handouts to able-bodied, childless adults. The CBO forgets that it was the TCJAs targeted tax relief rather than wealth transfers that lifted more than 6 million Americans from poverty and dropped the poverty rate to the lowest level in U.S. history.
Also neglected are the tax bills new pro-growth policies. The House version includes bonus depreciation – full tax deduction in year one – for factories and refineries, while the Senate GOP is trying to make bonus depreciation for business investment permanent. Recent research from FREOPPs Jon Hartley shows that the economic bang for bonus depreciation is two to five times larger than the CBOs models. Likewise, the OBBBAs energy deregulation and school choice initiatives will help working families facing high energy costs and public school monopolies.
To be fair, even if the CBO grossly underestimates the impact of the tax bill on growth, Congress must now get serious about tackling the deficit. The House bill takes a step in the right direction by protecting Medicaid for truly vulnerable Americans, but more needs to be done. Without larger reforms, the poor will be disproportionately harmed by entitlement insolvency and long-term government debt.
Step one, however, is passing the OBBBA. The next blue-collar boom depends on it.
Michael Toth is a resident fellow at the Foundation for Research on Equal Opportunity.
