TPC Finds The Senate’s Tax Cut Mostly Favors High-Income Households

The tax provisions of the Senate Finance Committee’s draft budget bill would cut household taxes by an average of about $2,600 in 2026, slightly less than the House-passed bill, according to a new Tax Policy Center analysis.

About 83 percent of households would have their taxes cut, compared to what they’d pay if the 2017 Tax Cuts and Jobs Act (TCJA) expired as scheduled at the end of this year. However, like its House counterpart, the bill would target most of its benefits to higher-income households.

The Senate Finance Committee bill makes scores of changes to the House version. In addition, it is likely to be revised before the chamber votes on the measure. Among the changes: Some increase in the cap on the state and local tax (SALT) deduction, which would provide additional benefits to high-income households. TPC’s analysis does not include the bill’s changes to Medicaid and Medicare.

Who gets the benefits?

The highest-income 20 percent of households—those making $217,000 or more— would receive about 57 percent of the benefit of the Senate tax cuts, while the top 5 percent, who make $460,000 and up, would get more than one-third.

By contrast, the lowest-income 20 percent of households, who make about $35,000 or less, would get about 1.5 percent of the benefit and middle-income households would receive about 14 percent.

On average, those low-income households would pay about $150 less than under current law, and their after-tax income would increase by less than 1 percent. Middle-income households would pay $1,750 less on average, about 2.2 percent of their after-tax income.

High-income households would receive much more generous tax benefits. For example, the bill would reduce taxes for those making between about $460,000 and $1.1 million (the 95th to 99th income percentile) by about $18,000 or 3.8 percent of their after-tax income.

As a share of after-tax income, that group would make out best. For example, the highest-income one percent of households would see their taxes cut by about $67,000 on average, or 3.1 percent of their after-tax income.

How the bills differ

Among the biggest differences:

• The House would raise the cap on the state and local tax (SALT) deduction from $10,000 to $40,000. This version of the Senate Finance bill would leave it at $10,000, though that is almost certain to change.
• The House would toughen the individual Alternative Minimum Tax, hitting more than 4 million households. The Senate measure would make only minor changes to the AMT.
• The House version of President Trump’s campaign promises, such as no taxes on tips and overtime or tax-exempt interest on auto loans, would be more generous than the Senate’s. One exception: the Senate creates a special $6,000 deduction for older adults while the House version provides a $4,000 deduction. Trump had proposed exempting Social Security benefits from tax.
• The Senate measure would include more generous corporate tax breaks, which TPC distributes to households.
• The House would increase the Child Tax Credit in the short term by somewhat more than the Senate version, but the Senate would make its changes permanent and index the credit for inflation. The House’s credit bump would be temporary and not inflation-adjusted.
• The House would increase the special tax deduction for some closely-held businesses from 20 percent to 23 percent. The Senate would keep the rate unchanged, though it would make other revisions.

Despite these and many smaller changes, both bills would extend the TCJA and include some version of Trump’s campaign tax proposals. As a result, the distributional differences between the House and Senate Finance bills are modest. However, they are noticeable.

Comparing the tax changes

Overall, the Senate Finance bill would cut taxes by an average of $2,600 while the House bill would reduce them by about $2,900.

Among lower-income households the differences are very small in 2026. Their average tax cut would be $150 in the Senate bill compared to $160 in the House version. Similarly, middle-income households would pay an average of $1,750 less under the Senate bill compared to $1,850 in the House version.

The differences would be more noticeable for higher-income households. For example, the Senate bill would cut taxes by an average of about $18,000 for the $460,000 to $1.1 million income group while the House bill would reduce their tax bills by an average of nearly $21,000. Among the reasons: the absence of SALT relief and the lower deduction for pass-through businesses in the Senate bill.

Similarly, the House bill would cut taxes for the top 0.1 percent, those making $5.2 million or more, by an average of $50,000 more than the Senate Finance bill.

The other major difference between the two bills is that they are built on two very different budget baselines. The Senate bill cuts taxes by only about $440 billion over 10 years by assuming there is no cost to extending the TCJA.

However, assuming the TCJA expires as scheduled and the Treasury must pay for any tax cuts beyond 2025, the Senate Finance bill would reduce revenues by $4.2 trillion over the same period. The House bill would cost $3.8 trillion.

That and many of the substantive differences between the two bills must be resolved before the giant tax and spending measure reaches Trump’s desk. That leaves a lot to do between now and the GOP’s self-imposed deadline of July 4.