Tax breaks Trump is counting on to drive 2026 economic growth

A sweeping 2025 tax law signed as the One Big Beautiful Bill takes effect for the 2025 tax year and will show up in early 2026 filings; the nonpartisan Tax Foundation estimates average after-tax pay will rise about 5.4% as a result.

A major tax overhaul known as the One Big Beautiful Bill was signed in 2025 and its provisions apply to the 2025 tax year, meaning effects will appear in upcoming filings and refunds. Officials and analysts say the changes are intended to increase take-home pay and support consumer spending, which accounts for roughly 70% of U.S. GDP. The nonpartisan Tax Foundation estimates average after-tax pay will rise about 5.4% under the new rules. The law was passed under special legislative rules without Democratic support and includes a mix of individual and business provisions. Key provisions: - The Tax Foundation estimates average after-tax pay will increase by roughly 5.4% because of the law's changes. - The SALT (state and local tax) cap was raised to $40,000, up from $10,000 under the 2017 law, and taxpayers who itemize can choose the SALT deduction instead of the standard deduction. - Tips will be exempt from federal taxation up to $25,000 per individual, with a phased reduction for filers above $150,000 (or $300,000 for married joint filers), according to Treasury guidance. - The law allows a deduction for the premium portion of overtime pay (time-and-a-half), with maximum annual deductions of $12,500 for single filers and $25,000 for joint filers, subject to income phase-outs. - Seniors may claim an additional deduction of $6,000 per individual ($12,000 per married couple) if they are age 65 on or before the last day of the tax year, with income limits that phase the benefit out at higher incomes. - The law maintained lower individual and business rates carried over from the 2017 reform, preserved 100% first-year depreciation for businesses, and continued incentives for certain investments. Summary: The changes will be reflected in tax returns and refunds for the 2025 tax year and are expected to shift after-tax income for different groups in varying degrees. Analysts highlight gains concentrated among upper-middle income earners while lower-income groups see smaller increases. The broader economic effect and political implications will unfold as filings are completed and official data on receipts and spending are released.