President Trump signed the Working Families Tax Cuts (WFTC) on July 4, 2025. A year later, we are starting to see the effects of this massive bill. Also called the One Big Beautiful Bill, this law did indeed reduce tax rates for Americans at virtually all income levels. It made reduced personal income tax rates from the 2017 Tax Cuts and Jobs Act (TCJA) permanent, saving millions of Americans from large tax increases. It lowered tax rates for smaller, “pass-through” businesses, and made full expensing for equipment and research and development permanent. The law added temporary full expensing for new factories, which is already boosting the level of capital investment in the economy. And it temporarily lowered income taxes on tips and overtime, while providing tax relief for seniors. These last three provisions in particular helped increase the size of tax returns for most Americans.
The WFTC did a lot more than simply lower taxes for most Americans. It added provisions in several government benefit programs to encourage work, which has already helped boost labor force participation. It included measures to combat waste, fraud, and abuse in areas as wide ranging as federal student loans and food stamps. And it included important improvements in child care, paid leave, and adoption tax credits to help strengthen families, which will help grow our economy in the long run.
However, it is difficult in the short run to fully assess the economic impact of a tax bill, even one as massive as the WFTC. And, in this current political environment, groups on the anti-taxpayer side of the political spectrum are all-too-eager to attack this landmark legislation. They claim that the bill mainly benefits the rich and has hurt the economy. Tax data from the years before and after passage of the TCJA shows that these attacks are likely not true, partially since a large portion of WFTC were extensions of tax rates from TCJA.
According to data compiled by Advancing American Freedom, in the year following TCJA passage, the share of income taxes paid by those making less than $100,000 fell by 3.4%, while the share paid by those making more than $200,000 grew by 3.5%. Even though the share of taxpayers making over $200,000 was only 8% in 2022, these taxpayers paid 72% of all personal income taxes collected. And the WFTC contained several large provisions that made our tax system even more progressive, including reduced taxes on seniors, tipped workers, and workers who collect overtime pay.
As for the new law’s effect on the overall economy, it will take some time to see the full effects. But data from the post-TCJA era points in a positive direction. According to a recent report by the Council of Economic Advisors (CEA), real workers’ earnings grew approximately twice as fast in the three years after passage of TCJA than the previous eight years, with the bottom 10% of workers gaining twice as much relative to previous income than the highest 10%. Family income in the year after TCJA passage grew by the highest amount on record, while poverty reached record lows. And this growth was achieved without reductions in tax collections that were anticipated by the Government Accountability Office (GAO) after the bill was passed. While GAO predicted that tax revenues would be 4% lower through 2024 thanks to TCJA, actual revenues did not fall below pre-TCJA projections. So the bill did not break the back of the federal budget, as lower rates helped boost the American economy.
Recent tax return information from the Department of the Treasury, as well as economic modeling by the CEA, point to quite positive results so far from the passage of the WFTC. According to Treasury data, 97% of taxpayers paid lower taxes thanks to the new law, with relief concentrated on workers making less than $200,000. Workers who made less than $100,000 last year received a tax cut of around $800, while those who made between $100,000 to $200,000 paid around $1,200 less to Uncle Sam. Also, well over 90% of Americans who benefited from the new worker-oriented tax cuts on tips, overtime, car loan interest, and senior income made less than $200,000 last year. So, the Working Families Tax Cuts did indeed help working families.
The CEA used available data to conduct an economic study of the business tax provisions of the WFTC, which NTU strongly supported. The analysis found that, relative to growth projections prior to WFTC, the bill’s domestic investment incentives are slated to produce large investment increases over both the next four years (7% to 10%) and the next 10 years (5% to 8%). CEA anticipates that GDP will increase 4.6% to 4.9% over the next four years, and 2.4% and 2.7% over the next 10 years. CEA also predicts substantially higher average annual wages and take home pay over the pre-WFTC baseline. Recent CBO data also anticipates higher GDP growth over the next 10 years thanks to the bill, increasing overall GDP by $1.1 trillion over baseline data by fiscal year 2035.
While the WFTC will likely not have the level of negative effect on deficits predicted by CBO and others, the bill did not go far enough to deal with our nation’s yawning federal debt. At the end of fiscal year 2024, federal debt held by the public reached $28 trillion, or 98% of GDP. The debt level has accelerated since then, partially due to some provisions included in the WFTC. While we anticipate that dynamic effects from pro-growth provisions in the bill will reduce its impact on the debt in the medium and long term, Congress needs to deal with this growing debt problem to avoid a future fiscal shock, potentially causing runaway interest rates and inflation in the future.
Policy wonks on both sides of the aisle will debate the relative merits of the Working Families Tax Cuts for years to come, frequently allowing their pre-programmed partisan biases to get in the way of a clear analysis. Once enough medium-term data becomes available, allowing economists to separate out noise, it is likely that the growth this bill has spurred will match or exceed the economic growth caused by TCJA. While it is imperative for Congress to take a sober look at the federal government’s long term deficits, the WFTC in the meantime is doing its job in driving economic growth, both now in and the years to come.