Clarifying Media Narratives Around Tax Cuts and Government Spending
To our clients and friends,
Recent headlines about tax policy and federal spending have stirred up a lot of debate—and sometimes, confusion. As your financial advisor, we believe it’s important to separate facts from framing, especially when it comes to understanding how new laws may affect your finances.
This message focuses on a major provision in the 2025 One Big Beautiful Bill Act (OBBBA): the extension of the 2017 Tax Cuts and Jobs Act (TCJA). We also address some common misconceptions about how the bill affects different income groups and clarify the difference between tax cuts and reductions in government spending.
What Actually Happened
One of the most widely discussed features of the OBBBA is the extension of the 2017 TCJA provisions. These were set to expire in 2025, meaning most Americans would have seen a tax hike in 2026.
- Congress extended these provisions, keeping rates the same.
- No new tax cuts were introduced.
- This action prevented an automatic tax increase—but did not lower anyone’s taxes beyond current levels.
The confusion arises because budget analysts score the bill as a “cut” relative to current law, but for taxpayers, the experience remains unchanged.
The “Tax Hike on the Poor” Narrative
Some have claimed that the bill raises taxes on low-income Americans. This is inaccurate.
- No new income taxes were levied on lower earners.
- The bill includes new work requirements for benefits such as Medicaid and SNAP.
- This represents a spending reduction—not a tax increase.
Whether spending on social programs should be increased or decreased is outside our purview. What matters for planning is that spending changes can affect household resources, just like tax policy does. Cuts may reduce fiscal strain, while increases may provide support—but both affect the overall economic environment.
Who Pays Income Taxes?
Understanding who pays what helps clarify who actually benefits from tax changes. Here’s a breakdown:
- Top 1% (>$580K): ~42% of federal income taxes
- Top 10% (>$170K): ~74%
- Top 50% (>$46K): ~98%
- Bottom 50% (<$46K): ~2%
- Bottom 40%: Net negative (receive more in credits than pay in taxes)
Sources: IRS, CBO, Tax Foundation, Urban–Brookings Tax Policy Center
Comparing Headlines to Reality
Policy Action | Headline Framing | Actual Effect |
TCJA Extension | “Massive tax cuts” | Maintains current rates |
Work-for-Benefit Rules | “Raises taxes on the poor” | Reduces government transfers, not a tax increase |
Why It Matters
- Maintaining tax rates is not the same as cutting them.
- Spending cuts can impact households but aren’t tax hikes.
- Relief usually mirrors the share of taxes paid—this is a function of math, not favoritism.
Coming Soon
We’ll be sending a clear breakdown of the tax and spending changes in the 2025 OBBBA—and what they mean for your household, retirement plan, or business strategy.
In the meantime, please reach out if you’d like a personalized review.
Lee E. Kerr