Donald Trump is altering the tax code for the benefit of millionaires and billionaires. That is the simplest conclusion to draw from the passage of the One Big Beautiful Bill Act earlier this summer, and not an incorrect one. Yet the bill also does something stranger and harder to parse, and something that might prove a more perilous threat to the country’s finances in the long term.
Republicans are riddling the tax code with carve-outs and loopholes, targeting workers at both ends of the income spectrum. The OBBBA creates ways for waiters and consultants, truck drivers and technology executives, to avoid taxation—but not so much the back-office managers and accountants working alongside them.
This shift stands to reduce horizontal equity, increase tax-rate dispersion, and shrink the tax base, as economists put it. In plain English, it will result in families with similar incomes facing wildly different tax bills, while subjecting a smaller share of earnings to taxes in the first place. Indeed, the legislation begs Americans rich and poor to game the system, structuring their businesses, employment contracts, and workweeks to duck the IRS. If and when America’s bill comes due, comfortable pencil-pushers might be the last people paying reliable, predictable sums to the tax man.
Ronald Reagan might applaud today’s party for lowering Americans’ tax bills. But he would hate the contemporary GOP’s complication of an already complicated system, and its use of administrative fine print to achieve populist ends. Republicans are “no longer trying to solve the puzzle of delivering tax cuts in a deficit-neutral way,” Jessica Riedl of the right-of-center Manhattan Institute told me. “They’re just handing out benefits like candy.”
The biggest bonbons have gone to the ultrarich. The OBBBA extends and expands Trump’s 2017 Tax Cuts and Jobs Act, tapping down marginal rates for individuals and slashing them for corporations. The laws allow prosperous parents to pass tens of millions of dollars to their children and grandchildren tax-free, and shrink the number of high-income households subject to the alternative minimum tax.
The TJCA and OBBBA also let companies write off the full cost of investments and equipment, turning profits into losses and making their tax liabilities go poof. And they permit so-called pass-through businesses to shelter 20 percent of their profits from taxation. These policies are meant to encourage companies to hire workers, build factories, buy equipment, launch new products, and pour money into research, and they do. But they also encourage executives and owner-managers to make themselves subject to the business tax code, rather than the individual tax code—pulling profits from a pass-through, say, instead of drawing a hefty salary from a corporation. As a result, a majority of earners in the top 1 percent of the income distribution invest in a pass-through, as does nearly everyone in the top 0.1 percent.
These people make a lot of money. And, come tax season, they keep a lot of the money they make, thanks to Trump. A new study found that the TCJA reduced the effective tax rate on the 400 wealthiest Americans from 30 percent to 24 percent. Corporate titans such as Jeff Bezos and Mark Zuckerberg benefited, but so did the burghers who constitute the country’s industrious upper crust: doctors, dentists, lawyers, consultants, accountants, specialty tradespeople, and the owners of auto dealerships, gas stations, franchise outlets, and so on. Today, the pass-through provision alone is worth roughly $70 billion a year for the rich. And the Congressional Budget Office estimates that the OBBBA will save the average American in the top 10 percent of the income distribution $13,622 a year.
As Republicans relieve the country’s red-leaning capitalist class from the burden of income taxes, they are also moving to relieve them of taxes on many of their most valuable assets: their homes. The country is in the midst of a full-on property-tax revolt, David Schleicher of Yale Law School told me. “The price of property in suburban and exurban areas exploded post-COVID,” he said, pushing up local-government assessments on apartments and houses. President Trump, for instance, paid more than $2 million in taxes on his Palm Beach properties in 2023, up from $1.5 million two years before.
The Club for Growth will not stand for it, and neither will many red-state legislators. (Nor will this guy, who went viral for breakdancing and moonwalking in protest of property taxes at a town hall in Cranford, New Jersey.) Texas Republicans are limiting the amount of property-tax revenue cities and counties can raise. Politicians in Ohio are discussing capping their levies, or requiring voters to approve any increases. Governor Ron DeSantis of Florida is pushing to get rid of property taxes entirely, casting them as an unfair “one-way ratchet” on homeowners.
In some cases, states and cities might replace property taxes with sales taxes. But property taxes are “the one real wealth tax we have,” Schleicher noted. In contrast, taxes on consumer goods are regressive, meaning that they are disproportionately paid by poor people.
Trump has already slapped the working class with a massive regressive tax this year, though he refuses to admit it. Tariffs are not paid by foreign exporters. They’re paid by domestic importers, who pass the fees onto their consumers by raising retail prices. The White House’s trade war is costing each and every American family $2,300 in 2025, and adding an estimated $100 billion to the government’s coffers. Still, the prospect of stagflation might force the Trump administration to repeal the levies, if the Supreme Court does not do so first.
In the drearier realm of W-2s and 1099s and 1040s, the Trump administration is reducing the amount of tax revenue collected from working-class families—and spinning them the kinds of loopholes traditionally reserved for the rich. The TCJA made the tax code cleaner and simpler by doubling the standard deduction, to its credit. The OBBBA makes the tax code messier and more chaotic by applying different levies to different income sources, to its detriment.
This month, the Treasury identified 68 occupations that would be allowed to deduct up to $25,000 a year in gratuity from their taxable income—bartenders, waiters, housekeepers, and hairdressers, sure, but also plumbers, electricians, comedians, and social-media influencers. The provision is “going to be a very interesting one to watch,” Janet Holtzblatt of the Tax Policy Center told me. “Interesting, like seeing someone’s artwork and calling it ‘interesting.’”
Millions of people who do not customarily get tips might be eligible for the valuable write-off. The change will probably lead to some “uncomfortable pauses” as locksmiths and roofers and language tutors wait around for a gratuity, Holtzblatt told me, or as podcasters push for their listeners to smash that “Follow” button and chip in on Venmo if they liked what they heard. Middle-income folks will benefit along with low-income ones: Households earning as much as $300,000 a year qualify for the break, and most waiters and dog walkers do not pay federal income tax anyway.
Very low-income families might profit in an indirect, unexpected way, Tom O’Saben of the National Association of Tax Professionals told me. Each year, many of these households miss out on valuable tax credits—the child tax credit, the earned-income tax credit, the American opportunity tax credit, the lifetime learning credit—because they do not report their full income to the IRS, claim the credits, or file a tax return at all. Families “are not educated about what benefits there are out there, and their fear of making a mistake or fear of the government has caused them to lose out,” he said. But the no-tax-on-tips exclusion is so large that waiters and coat-check attendants might report more income to the IRS, and end up with bigger rebates as a result.
The OBBBA also gives seniors a special deduction and gets rid of federal income taxes on the half part of time-and-a-half, with some limitations. In response, employees might work extra hours rather than picking up extra shifts. Employers might offer new hires an hourly wage rather than a salary, O’Saben told me, telling them that “actually, you’re going to keep more money” that way, given the new overtime rules.
Hardworking Americans keeping more of their money seems like it would be an unadulterated, uncontroversial good. But the no-tax-on-tips and no-tax-on-overtime rules are a problem for exactly the same reason that the pass-through tax shelter is a problem. The provisions create “a fundamental unfairness” in the tax code, as Riedl, of the Manhattan Institute, put it.
Why should a waiter get a tax cut, but not a nursery-school teacher? Why should the owner of a pass-through business pay a top income-tax rate of 29.6 percent, while a nurse anesthetist pays 37 percent? Why should a 65-year-old get a special deduction, but not a 63-year-old? Why not get rid of all the kudzu, ensuring that similar families with similar incomes pay similar tax bills and receive similar tax refunds?
Perhaps because then Trump and his fellow Republicans would not have goodies to give out to their supporters, whether billionaires in their beachfront estates or blue-collar workers drifting to the right or truck-driving Second Amendment enthusiasts. (The OBBBA lets people write off the interest on their auto loans and zeroes out a federal tax on certain firearms, by the way.)
Beyond being unfair, the loopholes encourage Americans to constitute their earnings as something other than a standard salary or a normal wage. The tax code already imposes different rates on income from different sources, such as capital gains and business profits. Now it will charge different rates on income from the same source, depending on the profession of the taxpayer and the number of hours they worked. At the moment, budget analysts don’t forecast that the no-tax-on-tips rule will affect many families or cost the government much revenue. But it could, because nobody knows how social norms will change, how workers will behave, or how the IRS will interpret and enforce the rules.
The IRS is facing a far more onerous task than it was a decade ago. “Tax laws never used to change as rapidly as they have,” O’Saben told me. “All of a sudden, we have this blistering series of changes,” with Congress “dumping it on the IRS to figure out”—right as the Trump administration gets rid of seasoned employees and slashes the institution’s enforcement budget.
With all this chaos, who will keep paying their taxes like they always have? Steve from accounting, pretty much. As a general point, high-income and low-income households have more variability in the amount of tax they pay than average-income households do. Some millionaires pay an effective tax rate of 3 percent and some close to 50 percent. Some people in the lowest decile pay an effective tax rate of 5 percent and some negative 15 percent (meaning they get more money back than they pay in). For typical earners, the range is tighter, the Yale Budget Lab has found—precisely because they have fewer credits, deductions, exclusions, and esoteric loopholes available to them.
The TCJA and OBBBA are likely to amplify these trends. Families in the professional-managerial class will benefit from the reduction in rates and changes to the so-called SALT cap, which reduces the amount of revenue collected from households in high-tax states, such as Connecticut and New Jersey. But many won’t benefit from the provisions for pass-through profits, bonus depreciation, tipped income, or overtime, or from the property-tax repeals. They might end up the last people paying predictable and transparent amounts on predictable and transparent sources of income. They might end up the last people for whom the tax code is a tax code, not an endless game of Calvinball.
Democrats seem unlikely to clean up the mess. The party has committed to never raising taxes on anyone making less than $400,000 a year, abandoning the idea that such levies are a reasonable price to pay for a thriving and abundant democracy. It has also started proposing its own Swiss-cheesing of the revenue rules. Like Trump, Kamala Harris supported eliminating taxes on tips. Like Trump, Senator Ruben Gallego of Arizona has called for eliminating taxes on Social Security.
I worry about a world in which the professional-managerial class is the last bulwark against budgetary collapse, as the tax base erodes and loopholes worm their way through it. A world in which Democrats and Republicans raise too little money and refuse to acknowledge taxes as an unfun but important part of adulthood. A world in which millions of bartenders and car-dealership owners and proprietors of gaudy Italianate beach clubs join together to fight against raising taxes, and also against a revenue system that is equitable and fair.
For Trump’s friends, I guess, everything. For Trump’s enemies, a 37 percent top rate.
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