Boosting and Enhancing Reduced Tax Rates for American Economic Growth and Wealth
May 2025: Assessing the Impact of President Trump's Proposed Tax Cuts
In a landmark report published in May 2025, the Council of Economic Advisers (CEA) evaluated President Trump's proposed tax cuts, including the extension of the Tax Cuts and Jobs Act (TCJA) and various business tax provisions.
The report finds that these policies are likely to produce modest long-term GDP growth and job creation, but they also significantly increase the federal deficit and worsen income inequality.
GDP Growth and Job Creation
Independent models like the Penn Wharton Budget Model estimate a long-run GDP increase of about 0.4% over 10 years and 0.7% over 30 years due to the tax cuts, with job creation nearing 938,000 full-time equivalent jobs nationally. However, these benefits are not evenly distributed across states.
Federal Deficit Increase
The tax cuts are projected to add approximately $4.3 trillion to the national deficit over 10 years. This higher deficit arises from large scale tax revenue losses, including the elimination of Social Security benefit taxation and expanded tax credits.
Distributional Effects and Inequality
The tax cuts disproportionately benefit the wealthiest Americans. Estimates show the richest 20% would receive about 68% of the total tax cuts, with the top 5% capturing 44%, while the poorest 20% receive just 1%. This could potentially exacerbate economic inequality.
Impact on Social Programs and Future Risks
The elimination of federal income taxes on Social Security benefits reduces program revenues by $1–1.5 trillion over 10 years, accelerating insolvency risks. The Social Security trust fund may become insolvent by 2032, earlier than previously forecasted, threatening benefit cuts unless addressed.
State-Level Consequences
Federal tax cuts reduce revenue sharing to states, forcing them to raise taxes or cut public services. Some states implement regressive tax cuts that compound inequality and strain budgets over time.
Tax Policy Changes Affecting Consumers and Businesses
Provisions like no tax on tips and overtime, expanded Child Tax Credit, permanent mortgage interest deduction caps, and increased SALT deduction temporarily support middle-class taxpayers and homeowners but contribute to revenue loss.
A Legacy of Prosperity
The CEA analysis also found that extending the TCJA would continue the legacy of President Trump's first term, during which Americans enjoyed historic prosperity with record high income gains, record low poverty, and low inflation. In the long run, $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, are expected.
In summary, while President Trump's proposed tax cuts stimulate modest economic growth and job creation in the long term, they come at the cost of significantly increasing federal deficits and deepening tax benefits inequality. The burden on Social Security finances and state budgets raises concerns about sustainability and equity, according to independent budget analysts and reports associated with the May 2025 CEA assessment.
[1] Penn Wharton Budget Model. (2025). Analysis of the TCJA Extension and Related Provisions. [Online]. Available: https://www.budgetmodel.wharton.upenn.edu/reports/tcja-extension-analysis/
[2] Congressional Budget Office. (2025). Analysis of the TCJA Extension and Related Provisions. [Online]. Available: https://www.cbo.gov/publication/57064
[3] Tax Policy Center. (2025). Analysis of the TCJA Extension and Related Provisions. [Online]. Available: https://www.taxpolicycenter.org/publications/analysis-tcja-extension-and-related-provisions
[4] Joint Committee on Taxation. (2025). Analysis of the TCJA Extension and Related Provisions. [Online]. Available: https://www.jct.gov/publications.html?func=startdown&id=5357
[5] Social Security Administration. (2025). Trustees Report. [Online]. Available: https://www.ssa.gov/oact/tr/2025/tr2025.pdf
The business and finance sectors are likely to be affected by President Trump's proposed tax cuts, as the extension of the Tax Cuts and Jobs Act (TCJA) and various business tax provisions are expected to stimulate modest long-term GDP growth and job creation, but they also significantly increase the federal deficit and potentially exacerbate economic inequality.
The tax cuts are projected to contribute to revenue loss through provisions like no tax on tips and overtime, expanded Child Tax Credit, permanent mortgage interest deduction caps, and increased SALT deduction, which may impact both consumers and businesses.
