From Lily, a service worker in New York, originally thought the "tip tax exemption" would quickly fatten her wallet, but after calculation, she found that the tax savings were not even enough for a hand-brewed coffee, helplessly sighing: "It turns out that the promised small happiness is actually just a mirage."
Although this narrative is fictional, it indeed hints at the gap between Trump's tax reduction slogan and its actual benefits. Previously, we mostly discussed the high-level impacts of the grand bill, and this article will roughly explore its impact on everyday life.
Bill Scale and Legislative Progress
Currently, the "One Big Beautiful Bill Act" has been submitted to the House of Representatives awaiting voting. If successfully enacted, it will release over $4 trillion in net tax cuts from 2025 to 2028. The bill extends the 2017 tax cut provisions and adds four major deductions: car loan interest, tips, overtime, and senior bonus:
- Car Loan Interest: Families can deduct up to $10,000 of new car loan interest from taxable income annually.
- Tips: Employees in traditionally tip-receiving industries, including service and food service sectors, can deduct up to $25,000 of tips from taxable income annually.
- Overtime Pay: Employees can deduct up to $12,500 of overtime pay from taxable income annually. (Joint filing couples can deduct up to $25,000.)
- Senior "Bonus" Deduction: Americans 65 and older can deduct up to $6,000 from taxable income.
Three Thresholds of Deduction Design
At first glance, deductions of up to $10,000 for car loan interest, $25,000 for tips, and $12,500-$25,000 for overtime seem attractive, but CNBC analysis reveals three "invisible ceilings" in actual operation.
First, most low-income earners' taxable income is already offset by standard deductions, leaving limited space for new deductions.
Second, tax savings are tied to applicable tax rates. Those in the 10% bracket save only $0.1 for each $1 deducted, while high-income earners can amplify benefits through higher tax rates.
Third, quota and threshold designs exclude many base-level consumers. For example, to enjoy full car loan interest deduction, one must have a new car loan over $112,000, a group representing only 1% of the market.
Tax Credit is the Key for Low-Income Households
Unlike deductions requiring a tax base, "credits" are directly subtracted from tax amounts, providing more substantial help to low-income families. While OBBBA raises the child tax credit to $2,200, with $1,700 refundable, the American Tax Policy Center and Congressional Budget Office note that low-income earners still primarily rely on existing Earned Income Tax Credit (EITC) and premium tax credits.
Research from Yale University's Budget Lab further shows that overall distribution is "camel-shaped", with middle to high-income groups being the biggest winners.
Market Impact and Future Variables
If the bill passes, car and service industry tax cuts may stimulate automotive, retail, and leisure stock performance in the short term and increase some consumers' disposable income. However, $4 trillion in tax cuts will raise fiscal deficits, potentially driving long-term interest rates up and squeezing social welfare budgets like Medicaid and food stamps.
From "labor gospel" to "wealth redistribution", OBBBA is hoped to be a policy highlight in the election game, but for low-income groups, the substantial benefits from deductions remain limited. As the House deliberation approaches this week, how this tax cut drama unfolds will influence Washington's political temperature and shape the U.S. fiscal and market trends in the coming years.
