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Written by: Eugene Steuerle
On Tuesday, June 2, the U.S. Treasury released a statement claiming that “American families and workers overwhelmingly benefited from the Working Families Tax Cuts, receiving the largest share of the historic tax relief delivered this past filing season.” As evidence, it noted that “97% of filers received a tax cut this past filing season.” It especially bragged about provisions such as “No Tax on Tips,” “No Tax on Overtime,” and other deductions that discriminate in favor of select groups of taxpayers.
In point of fact, the tax cuts discussed in this release provide a smaller reduction in taxes, relative to their after-tax income, for middle-class working families than for high-income taxpayers. The release further extolled how it violated a fundamental principle of tax policy centered on equal justice. To add to the confusion, it joined an effort to rebrand the bill, titled by Congress as the One Big Beautiful Bill Act (OBBBA), as “the Working Families Tax Cuts.” Congress enacted no bill with that title.
The distribution of tax benefits
In their recent post on Tax Vox, my colleagues at the Tax Policy Center, Benjamin R. Page and Renu Zaretsky, examine the claims made by Treasury. The Treasury release highlights the benefits of OBBBA for taxpayers who have filed their 2025 tax returns, but it ignores the major provisions that will not be implemented until 2026. In the bill as a whole, for instance, the top 5 percent of tax returns will receive over 35 percent of the tax cuts (see figure above).
Also, the calculation of tax reductions excludes losses in Medicaid and other OBBBA-related outlays, which are largely borne by low-income households.
How about the claim that 97 percent of taxpayers benefited from the tax bill? That calculation gives a middle-income taxpayer receiving a $100 tax cut the same weight as a high-income taxpayer receiving a $30,000 cut. That is equivalent to saying you gave all your family members a Christmas present, even though you gave one a candy bar and another a new home. Also note that the calculation includes only tax returns, thus excluding from the denominator of “tax returns” those households that do not file tax returns.
Thus, as Page and Zaretsky state in the title of their article outlining these issues, the “2025 tax bill was not targeted toward low-income families.”
Unequal Justice
Equal justice under the law, proclaimed and engraved in stone on the main western pediment of the United States Supreme Court Building in Washington, D.C., has broad application. In the justice system itself, it means that, barring extenuating circumstances, equal crimes should receive equal punishment. Often defined as horizontal equity in tax policy, equal justice also means that equals should be taxed equally, and those with equal ability to pay should pay the same amount of tax. In the income tax, it means that those with equal incomes should pay the same amount of income tax, except in extenuating circumstances, such as high medical expenses, which reduce the ability to pay.
Many of the provisions praised in the Treasury release, such as the reduced tax on tips, benefit only select groups of households and violate that fundamental principle of tax policy. A waiter in a restaurant earning $40,000 a year should not pay significantly less tax than a retail store clerk earning the same amount. These selective instances of favoritism in OBBBA move the tax system in the exact opposite direction of the reforms incorporated into the Tax Reform Act of 1986, which President Ronald Reagan supported and Congress passed overwhelmingly with bipartisan consensus.
Finally, as with most bills that pretend to offer giveaways to almost everyone, the payors are ignored. Future taxpayers must pay to cover the cost of the additional debt incurred to fund those cuts. There is no free lunch that transfers money to almost 100 percent of households.