HR7303-119

What This Bill Does

The Middle Class Tax Cut Act changes individual income tax rules for taxable years beginning after December 31, 2025. Section 2 raises two standard deduction amounts in section 63(c)(2) from $4,400 to $75,000 and from $3,000 to $50,000, with inflation indexing based on calendar year 2025 for those new amounts. Section 3 replaces individual income tax rate tables with new schedules: joint returns start at 25 percent up to $200,000 and reach 70 percent above $2 million; heads of household start at 25 percent up to $150,000 and reach 70 percent above $1.5 million; other individuals start at 25 percent up to $100,000 and reach 70 percent above $1 million; and estates and trusts reach 70 percent above $20,000. The bill strikes section 1(h), removing preferential capital gains and dividend rate treatment, and updates inflation-indexing cross-references.

Who Benefits and How

Taxpayers who can use the much larger standard deduction amounts benefit because more income could be shielded from taxable income before rates apply. Middle-income households may benefit if the larger deduction outweighs rate changes. Federal revenue collections may benefit from higher marginal rates at high incomes and repeal of preferential capital gains treatment. Tax-policy advocates favoring a more progressive rate structure benefit from brackets that rise to 70 percent for top incomes.

Who Bears the Burden and How

High-income taxpayers, investors using capital gains preferences, estates, and trusts face higher marginal rates and loss of section 1(h) preferential treatment. IRS tax administration staff must update forms, withholding tables, inflation indexing, tax software rules, and taxpayer guidance for the new deduction and rate schedules. Tax preparers must model interactions between larger deductions and steeper rates. Federal taxpayers as a whole bear uncertainty about distributional and revenue effects until official scores are produced.

Key Provisions

• Expands selected standard deduction amounts to $75,000 and $50,000 for taxable years after 2025.
• Modifies individual income tax rate schedules with brackets beginning at 25 percent and reaching 70 percent at the highest incomes.
• Repeals preferential capital gains and dividend rate treatment under section 1(h).
• Requires IRS and tax preparers to apply new inflation indexing and rate tables after 2025.