WASHINGTON — U.S. Senate Republicans, including Alabama’s lawmakers, have hailed the extension of tax cuts and the addition of new tax breaks as motivation for supporting President Donald Trump’s sweeping tax cut legislation, but the benefits won’t be felt equally.
The version that passed the Senate Tuesday would extend Trump’s 2017 tax cuts, which are set to expire at the end of the year. The 2017 tax cuts lowered the individual income tax rates and increased the standard deduction for filers.
The legislation makes permanent the higher standard deduction and increases it to $15,750 for single filers, $31,500 for married filers and $23,625 for heads of household.
In Alabama, the average taxpayer would save $2,192 per year by extending the tax cuts, according to the Tax Foundation, a right-leaning think tank. A congressional district breakdown of the tax cuts in Alabama is also outlined on the Tax Foundation’s website.
The Alabama chapter of Americans for Prosperity has been focused on advocating for the extension of the 2017 tax cuts. State Director Adam Thompson argued every Alabama family would see a tax increase if the cuts expire.
“When you’re filing your taxes and you’re seeing those numbers and you’re going through, whatever your tax preparation services or your accountant, and you’re seeing those increases, that’s where most people are going to see it immediately,” Thompson told Alabama Daily News. “But that’s where it’s going to be the most direct and the most probably visible to most Alabamians.”
The tax cut extensions would also apply to business income, with the bill making the 20% deduction of qualified business expenses permanent. In Alabama, that deduction would impact 269,650 small business owners, according to a fact sheet from Republicans on the Senate Finance Committee.
Seniors will also see an additional $6,000 tax deduction under the Senate bill, but that will only last through 2028.
The bill permanently increases the estate tax exemption to $15 million beginning in 2026.
The child tax credit would be enhanced permanently under the bill to $2,200 and indexed for inflation. Senate Finance Committee Republicans said the child tax credit would impact 566,380 families in Alabama.
Trump’s campaign promises of no tax on tips and no overtime are also included in the bill, but with limitations. These additional breaks are set to only last through 2028. The no tax on tips would provide a deduction of up to $25,000 and would phase out when an individual’s income is greater than $150,000.
The no tax on overtime provision would provide a deduction of up to $12,500 and it would also phase out when a person’s income exceeds $150,000. Alabama’s own version on no tax on overtime ended this week and cost the state more than $400 million over 18 months.
The bill also adds new savings accounts for children called “Trump accounts” that provide a one-time deposit of $1,000 from the federal government for those born in 2025 through 2028.
The Senate bill provides a standard deduction of to $1,000 for single filers or $2,000 for married couples for charitable donations beginning in 2026.
Republicans contend these tax cuts will be beneficial for low-income and high-income families. However, a new analysis from Yale Budget Lab shows that the tax cuts in the Senate bill, when taken into account with the spending cuts on social safety net programs, will benefit high earners more than they will low earners.
The analysis found the bottom 20% of earners would see nearly a 3% reduction in their income or about $700 under the Senate version of the bill. While earners in the top 20% would see an increase in income of 2.2% or about $5,700.
“The overall effect of these policy changes would be regressive, shifting after-tax-and-transfer resources away from tax units (members of a household filing a tax return together) at the bottom of the distribution towards those at the top,” the analysis noted.