Distribution of Tax Cuts in the New Tax Law

Earlier this month, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. The Budget Lab has produced several analyses on different aspects of law's distributional impacts, including the standalone impacts of each tax provision, the total impact of its tax provisions, and the net effect of tax changes and spending cuts.

In general, these analyses look at the impacts against a “current law” baseline—that is, they compare taxes under the OBBBA to taxes under a scenario where the Tax Cuts and Jobs Act (TCJA) would have expired as scheduled in 2026. Current law is the analytically coherent baseline for evaluating the total impact of proposed legislation.

But comparisons against a “current policy” baseline, which assumes that the TCJA would have been extended, can also be instructive for answering more specific policy questions. For example: to what extent will the new tax law’s individual income tax changes be salient to taxpayers?

Most of the tax cuts in the OBBBA were simply an extension of the tax code that was in place for 2025. If households think about tax changes on a year-over-year basis, rather than a counterfactual basis, then they may not “feel” the impact of the new tax law unless they benefit from one of the new tax breaks, like the “no tax on...” tax breaks or the higher cap on state and local tax (SALT) deductions. Therefore, looking at tax cuts against a current policy baseline—that is, how much taxes changed above and beyond TCJA extension—helps us understand how much tax relief taxpayers will receive over and above the post-2017 status quo.

Figure 1 shows the breakdown of the size of individual income tax cuts under the new tax law relative to a current policy baseline in 2026. Figure 2 further breaks these numbers down by income group. The results imply a few different notable findings:

• Many taxpayers will see little-to-no additional tax relief. For tax year 2026, we estimate that about one-third of households will see no additional benefit on top of TCJA extension. Almost half will see a tax cut of less than $100 for the year, and two thirds will see a cut of less than $500.
• Those with no additional tax relief are concentrated toward the bottom half of the income distribution—and also the very top. Low-income households, who pay little or no income taxes to begin with, do not benefit much if at all from the new deductions, higher tax brackets, or the larger Child Tax Credit (CTC). Fewer than one in ten households in the bottom two quintiles would see a tax cut of more than $100. This dynamic also holds true for the top 1% of taxpayers, since many of the new tax cuts are income-limited (like the higher SALT deduction cap and the “no tax on...” provisions) and revenue-raising reforms are targeted towards high earners (like the new limits on charitable deductions and overall itemized deductions).
• Notable tax cuts are most common in the upper-middle income range. More than half of taxpayers in the fourth income quintile (about $75,000 to $130,000) would see a tax cut of at least $500, and half of top-quintile (quintile 5 in the graph below) taxpayers will see a tax cut of at least $1,000. These groups are generally more likely to benefit from the “no tax on...” provisions (including the new senior deduction) and the higher SALT cap.