A new report released today by the Institute on Taxation and Economic Policy explains how individuals and families will see their taxes change in 2026 as a result of the new law, using the “current policy baseline.”
Key findings:
- The megabill will raise taxes on the poorest 40 percent of Americans, barely cut them for the middle 20 percent, and cut them tremendously for the wealthiest Americans compared to the tax situations faced by Americans this year.
- This tax increase for the poorest Americans is largely attributable to lawmakers’ decision not to extend enhancements to health care tax credits that make health insurance more affordable.
- The richest 1 percent of Americans alone will benefit more than the bottom 80 percent of Americans, receiving a total net tax cut in 2026 that is about $14 billion greater than the poorest 40 percent, the middle 20 percent and the next 20 percent of Americans combined.
- Even foreign investors who own shares in U.S. companies will benefit more than most Americans. These foreign investors will receive more in net tax cuts in 2026 than the middle 20 percent and poorest 40 percent of Americans combined.
- For Americans with modest incomes and middle-class Americans, those cuts will be quite small and, in some cases, will be completely outstripped by the Trump administration’s higher import taxes, or tariffs. For example, even before considering the tariffs, the poorest 20 percent will see an average tax increase of $140 compared to what they currently pay. The middle 20 percent will see a tax increase in some states and, on average nationwide, will see a tax cut of $370 compared to what they now pay.
What do we mean by current policy baseline, and why use it?
In analyzing the impact of the tax and spending megabill signed into law by President Trump on July 4 there is a difference between the approach that makes the most sense for understanding the impact on the federal budget and another approach that might make more sense for individuals thinking about their own tax bills.
As ITEP has previously found, the megabill will reduce revenue by nearly $570 billion in calendar year 2026 alone compared to what would happen if Congress did nothing. This is using what is called the “current law baseline,” which is the most sensible way to measure a policy change’s budgetary effects.
However, taxpayers seeking to understand how their taxes will change next year compared to what they are currently paying may find that using what is called the “current policy baseline,” which measures the new policy compared to the policy in place right now, is more intuitive.
