How President Trump's Tax & Spending Law Will Affect Americans' Wallets

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Hey there, it's the NPR Politics Podcast.

I'm Ashley Lopez.

I cover politics.

I'm Mara Lyason, senior national political correspondent.

And NPR's chief economics correspondent Scott Horsley is here.

Hi, Scott.

Always nice to have you.

Great to be with y'all.

And today we're digging into President Trump's big tax cut and spending bill, which he has signed into law.

Scott, this is a massive piece of legislation.

There's a lot in here.

But I wonder what are some of the main things that people will actually notice will change in their lives as a result of this new law?

Well, I think it remains to be seen how much people will notice.

But the big thing this measure does is extend the individual tax breaks that were included in the 2017 tax cuts put through the last time President Trump was in the White House.

Otherwise, those tax cuts would have been set to expire at the end of this year.

The bill also adds some new new temporary tax cuts on top of that on things like tips and overtime.

But as I say, I'm not sure how much people are going to notice because for most folks, their take-home pay is not going to change very much.

You know, they will avoid what would have been a tax increase, which I'm sure is welcome for a lot of people, but that doesn't pack the same emotional punch as actually seeing your paycheck get bigger.

It's also the case that the bulk of the savings in this bill are tilted towards the wealthy.

The Tax Policy Center says 60% almost of the savings go to the top 20 percent of earners.

Middle-income families will see a much smaller saving.

And according to the Congressional Budget Office, people who make less than about $55,000 a year are actually likely to be worse off because the cuts to the safety net programs in this bill will outweigh any tax savings.

Well, so it sounds like this isn't sort of the big economic stimulus plan that Trump had sort of promised voters who were wringing their hands about the economy before the election.

I mean, is there evidence that this could invigorate the economy like has been promised?

Aaron Powell, Jr.: Well, first of all, we have to say the economy was, you know, doing okay beforehand.

So it's not like there's a great big hole that has to be filled.

It's not like we're in a recession that we're trying to reverse.

And partly because the economy was doing okay already, most forecasters are not expecting this to generate a huge economic boost.

There are some incentives here.

Businesses can write off investments right away instead of over time, and that might encourage some additional investment.

But on the whole, this bill, which the President signed on the 4th of July, is not an economic skyrocket.

It's more like one of those little glowworms that grows a little bit when you set fire to it.

And because it adds significantly to the federal debt, it could lead to higher interest rates, which is a potential drag on the economy.

Yeah, particularly housing would be affected by that, which is an interesting political position, Mara, because housing was one of the things that voters were

most, I guess, concerned about in terms of the economy coming into the election.

That's right.

This bill doesn't really address big problems that voters care about.

And the other thing that's really interesting about this bill is, as Scott just said, it's not going to have a big impact on the economy.

It's not going to juice the economy.

And it also doesn't do a whole lot for the new coalition of voters that Donald Trump has assembled.

I mean, the new Republican Party.

is based on support from blue-collar non-college voters.

So it's unclear, other than giving Trump what he wants, a win, it's not clear what this bill does that's useful to the economy or to the Republicans' coalition going forward politically.

Yeah, well, Scott, it did deliver on some specific campaign promises, though.

I'm thinking here, the no taxes on tips are overtime wages, as well as cuts to taxes on social security benefits.

To what extent does this legislation make good on those campaign promises?

Because it is a part of the bill.

I just don't know in effect like how much this sort of delivers on that.

It does deliver on some of those promises.

For example, the no tax on tips proposal.

This does include a temporary tax break for tipped workers.

Of course, tipped workers are just a small segment of the overall workforce.

And one of the reasons that economists kind of hate this proposal is why should a waiter or waitress get a tax break here when an equally low-wage worker in some other industry doesn't.

But it does deliver on that no tax on tips promise, at least for a few years, and also for the no tax on overtime.

With Social Security, this doesn't actually exempt Social Security benefits from taxes.

What it does do, though, is provide a sort of bonus

deduction for retirees 65 and older.

So they get sort of an extra standard deduction, which for some people will offset the taxes that they would otherwise owe on Social Security benefits, but not for everyone.

And that extra deduction phases out as you go up the income ladder.

The Social Security Administration sent out a notice about this tax break, and it was really kind of misleading.

It did suggest that Social Security benefits were going to be exempted from taxes, and that's not the case.

Well, that raises a really interesting question about the politics going forward, because unlike some of the other details of tax policy, Social Security benefits are something that people really pay attention to.

And if they were given a letter from the Social Security Administration that their benefits would not be taxed, and then their benefits are taxed, I think that could be the basis of a political backlash.

Aaron Powell, well, cuts to benefits in general are pretty unpopular.

I mean, I think it's safe to say, Mara, that the looming trillion-dollar cuts to Medicaid and food stamps are part of the reason that this bill was very unpopular.

But it seems like at least those cuts in particular won't take effect immediately, right?

I mean, do you think that that sort of delays the sort of political impact of this law for at least the immediate future?

Sure.

And that's something that's not unique to Trump or Republicans.

I mean, when Congress passes a bill that has goodies for some people and pain for others, they generally front load the goodies and put the painful part after the next election.

So that's not unusual.

But sure, if people are still on Medicaid in the 2026 elections, you're not going to have the same kind of backlash as when millions of them lose Medicaid.

But I think the main thing to understand about this bill is that it's political.

It's a win for Trump.

That's what he cares about.

He doesn't care about the details of policy from all the accounts that we have heard about his interest or lack thereof in legislative details.

But this demonstrates his complete total control over the Republican Party in Congress.

No modern president has had as firm a grip on his party as Donald Trump.

Over and over again, Republicans said this bill was terrible.

It's going to increase the deficit.

It's going to hurt rural hospitals.

And they all folded except for, you know, four of them in the end.

It's really remarkable, given how unpopular this bill is, how reluctant lawmakers who are going to have to run for re-election in 2026 and Donald Trump is not, but lawmakers did not want to take the chance of bucking President Trump.

Yeah.

All right.

Well, we're going to take a quick break.

More in a moment.

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and we're back Scott, so the Congressional Budget Office, which is the nonpartisan government analysis agency, has said that this new law will add trillions to the deficit.

How could a bigger deficit actually affect consumers here?

Aaron Powell,

yes, and we see very similar estimates from the Yale Budget Lab, the Committee for a Responsible Federal Budget.

Pretty much everyone who's looked at this says, look,

if you collect a lot less in taxes, you're going to have to borrow more money to pay the government's bills.

And if the government has to borrow more money,

that tends to raise interest rates.

And that's the way that this is going to affect people, not directly, but indirectly.

All that extra government borrowing is going to make it more expensive for people like you and me to make borrowing decisions in the private sector, whether that's buying a house or trying to grow a business or take out a loan to build a new factory.

Those interest costs are expected to be higher as a result of this.

The government is already having to borrow an enormous amount of money.

And so with all that additional borrowing, it's just going to push interest costs even higher, which, as I say, is likely to be a drag on economic growth, growth, all else being equal.

Aaron Powell, yeah, but Mara, do voters actually care about the deficit?

I guess I mostly wonder, like, when they're having a harder time borrowing money, do they automatically think like, oh, my goodness, this has to be the deficit that is to blame here and Republicans spending a lot of money on Congress?

Aaron Powell, Jr.: Well, if they come to that conclusion, it will be because Democrats were successful in explaining that to them.

So that is a big question mark, whether that will happen.

But no, I don't think voters care much about the deficit.

They don't like it if you ask them a question in the abstract.

There's a very, very small group of members in the House and Senate Republicans who do care about the deficit, but they all caved in the end and voted for a bill they said was extremely irresponsible about the deficit and added trillions of dollars to the national debt.

So I would say no.

I think that the things in this bill that do matter to voters are tax hikes, tax cuts, Medicaid cuts.

That's the thing that affects voters on a daily basis more.

I will say one reason voters haven't needed to be concerned about government debt for a long time is that for a long time

the federal government and even private borrowers could borrow money at really low interest rates.

You know, we went through a long period of time after the financial crisis in 2008 and 2009 where interest rates were just super low, both for the government to finance its big debt and also for individuals trying to get a car loan or buy a house.

Mortgage rates were quite low.

Borrowing costs in general were quite low.

That's now turned around.

Now we've started to see borrowing costs go higher, both because the Federal Reserve has been fighting inflation and that's caused them to push up short-term rates, and because the bond market has finally started to recoil at these massive government debts and say, we want a little bit more money in order to extend credit to the federal government.

And so that lengthy period of ultra-low borrowing costs seems to be in the rearview mirror.

And we're now starting to see higher interest rates.

Interest has become one of the biggest expenses for the federal government now.

It's third on the budget after Social Security and maybe Medicare.

A trillion dollars in interest interest payments every year that the government's having to make on its debt.

And if we're having to pay that much just to service the debt, that's money we can't spend on all the other things we would like the federal government to do.

So the period when folks could sort of ignore these looming debts is maybe coming to an end.

Yeah.

Before we wrap things up, I do want to ask about the tariffs of it all.

President Trump has obviously promised some resolution this week on tariffs.

We've got some news.

I mean, how do you both think these new tariffs might boost or weaken the effects of what just passed?

Aaron Powell, Jr.: If you want to think about the overall economic policies of the Trump administration,

this tax and budget bill was one big piece of it.

But the tariffs are another big piece of it.

And it's very possible that whatever savings people are going to enjoy from the tax cut are going to be gobbled up and perhaps more so by the tariffs.

Now, we haven't seen the full force of the tariffs just yet because the president keeps pushing off the date when the highest tariffs are going to go into place.

But already we're seeing 10% tariffs on just about everything the U.S.

buys from overseas, higher tariffs on steel and aluminum cars, things like that.

And just now the president is threatening to impose 25% tariffs on imports from Japan and Korea with other countries likely to face similar bills.

So those higher import taxes will push up prices.

And for many families, that will cut into or even overwhelm whatever savings they get from this tax bill.

Yeah.

Well, all right, let's leave it there for today.

Scott, thanks for being here.

Always good to talk to you.

Yeah, I'm Ashley Lopez.

I cover politics.

I'm Mara Lyasson, Senior National Political Correspondent.

And thank you for listening to the NPR Politics Podcast.

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