Executive Summary

This paper builds upon the April 2025 Council of Economic Advisers (CEA) analysis which found that extending the 2017 Tax Cuts and Jobs Act (TCJA) would avert a $4 trillion tax hike and continue the legacy of President Trump’s first term when Americans enjoyed historic prosperity in the form of record high income gains, record low poverty, and low inflation. This paper studies President Trump’s broader proposed tax cuts, including permanent extension of the TCJA (the topic of the April paper) and related business tax provisions along with additional temporary tax cuts proposed by President Trump as well as enhancements for households and businesses included in the “One Big Beautiful Bill” approved by the House Ways and Means Committee on May 14, 2025. Specifically, this report studies the following provisions relative to expiration of the TCJA after 2025:

• Permanent extension of the expiring TCJA business tax cuts;
• Permanent full expensing for equipment;
• Permanent full expensing for research and development (R&D);
• Permanent additional rate cuts for businesses, namely:
o A 15 percent corporate tax rate for domestic manufacturing and equivalent reductions for pass-through manufacturing activities;
o A lower tax rate for foreign-derived intangible income (FDII);
o An increase in the section 199A deduction from 20 percent to 23 percent;
• Temporary full expensing for new factories (for four years);
• Extension and strengthening of individual tax relief from the TCJA;
• No income tax on overtime, no income tax on tips, and tax relief for seniors; and
• Renewal and enhancement of Opportunity Zones (OZ) incentives in distressed areas.

The CEA finds the following short-run effects over the next four years from the tax cuts:

• 9.8 to 14.5 percent higher investment;
• 4.2 to 5.2 percent higher GDP (in real levels);
• 6.6 to 7.4 million full-time equivalent (FTE) jobs saved or created. In the long run, with effects gradually building up over the next four years and beyond:
• Higher investment and GDP (4.9 to 7.5 percent and 2.9 to 3.5 percent, respectively);
• 4.2 million more FTE jobs;
• $6,100 to $11,600 higher wages per worker;
• $7,800 to $13,300 higher take-home pay for a typical family with two children; and
• $100+ billion of investment, 1+ million jobs, and hundreds of thousands of new homes to support workforce growth in poor communities, especially in rural areas.

he tax package as a whole not only averts the potential recessionary impact of a historic tax hike, it additionally provides for long-term economic growth, job creation, and higher pretax wages and after-tax incomes for American families. Although this paper does not explicitly study the impact of the tax package on inflation dynamics, the heavy emphasis on supply-side incentives and the experience of low inflation following passage of the TCJA during the first Trump Administration suggests that the current tax package will lay a strong foundation of non-inflationary growth and greater affordability.   back...