How Did the One Big Beautiful Bill Act Change Tax Policy?
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The legislation, which was passed through the reconciliation process, includes sweeping changes to both taxes and spending across the federal budget. The Congressional Budget Office (CBO) projects the legislation will add $3.4 trillion to deficits from 2025 to 2034, making it the most costly reconciliation act in recent history. Including additional interest costs raises the total price tag for the OBBBA to $4.1 trillion.
This piece looks at how OBBBA restructured the tax landscape across four major areas: individual tax provisions, business tax provisions, energy tax credits, and health-related tax changes. Other pieces in this series examine how the legislation affects spending and healthcare policy.
Tax Provisions in the OBBBA Increase Deficits by Trillions
Most of the cost of the OBBBA is driven by tax changes in the bill, which amount to $4.4 trillion over ten years, and permanently extended and expanded many provisions from the 2017 Tax Cuts and Jobs Act (TCJA).
Individual Tax Provisions
Tax provisions affecting individual taxpayers make up a majority of the changes made by the OBBBA. Those changes — which included both new provisions and extensions of expiring provisions — are projected to increase deficits by a total of $4.2 trillion by 2034.
The TCJA Individual Tax Extensions and Enhancements
The most expensive components of the OBBBA extended and enhanced individual income tax cuts first enacted in the TCJA and were originally set to expire on December 31, 2025. Those provisions alone are projected to increase federal deficits by $4.0 trillion over the 2025–2034 budget period. Reduced individual income tax rates, an increased standard deduction, and the enhanced child tax credit comprise the bulk of revenue loss in the OBBBA. That revenue loss is partially offset by a relaxed cap on the state and local tax (SALT) deduction and extended limits on personal exemptions.
New Individual Tax Provisions
New individual tax provisions are projected to increase federal deficits by $241 billion over the next 10 years. The most costly of those provisions are temporary tax deductions that were introduced during the 2024 presidential campaign such as “No Tax on Tips” and “No Tax on Overtime.” They create additional deductions for specific categories of taxpayers that are all set to expire in 2028. The new deductions will allow eligible taxpayers to reduce their overall taxable income, which decreases tax liabilities and consequently increases federal deficits.
Business Tax Provisions
The OBBBA also contains a number of changes to the tax code affecting businesses, which result in a net deficit increase of $905 billion from 2025 to 2034.
TCJA Business Tax Extensions and Enhancements
The legislation extended and enhanced several domestic business tax provisions that were set to expire under the TCJA. Expanding TCJA provisions and adding other business incentives are projected to increase the deficit by $799 billion over the decade.
International Business Tax Provisions
The OBBBA retained and modified the international tax provisions from the TCJA that were set to revert to higher effective rates at the end of 2025. The legislation modified international tax provisions primarily by adjusting the deduction rate for foreign-derived income (income from exports made with U.S. based intellectual property) to a 14 percent effective rate. The changes also set the base erosion minimum tax rate (a tax designed to prevent U.S. companies from moving profits outside of the country) to 10.5 percent, and the legislation repeals the de minimis import exemption (an exemption on imported goods below a certain value from duties, fees, or taxes) for shipments effective July 1, 2027. The limits on tax rates applied to cross border income are projected to increase the deficit by $127 billion over 10 years.
Other Business Tax Provisions
Other OBBBA business provisions included a mix of tax changes that both increase and decrease federal revenues, creating a mixed fiscal impact with a net deficit decrease of $21 billion.
Targeted Tax Changes
While the OBBBA significantly reduces federal revenues through tax cuts and new deductions, it includes some cost-saving measures that partially offset those losses. The legislation scaled back or eliminated many energy tax credits enacted in the Inflation Reduction Act of 2022 (IRA) and modified health-related tax credit structures. Those changes reduce the overall fiscal impact of the legislation, though they represent a relatively small portion compared to the cost of the major tax cuts and extensions.
Environment and Energy Taxes
The IRA promoted energy efficiency and aimed to reduce greenhouse gas emissions through an expansive suite of tax incentives. The law created and significantly expanded what became known as the "clean energy tax credits." The OBBBA reversed course by terminating most of the clean energy tax credits, saving $496 billion over the 10-year budget window.
Health Taxes
The OBBBA restricted health-related tax expenditures, reducing the federal deficit by a net of $211 billion from 2025 to 2034. The legislation limited eligibility for the premium tax credit (an income-based credit designed to subsidize the cost of health insurance premiums) to specific immigrant categories and requires verification of income and immigration status before receiving credits. It also eliminated partial repayment protections for excess advance credits, which require taxpayers whose real income exceeded expected income to repay excess credit amounts received. In addition to tightening those restrictions, the bill expanded Health Savings Account (HSA) eligibility. For more information on how OBBBA impacted healthcare, please see "How Did the One Big Beautiful Bill Act Change Healthcare Policy?"
Conclusion
The One Big Beautiful Bill Act increases the federal deficit by $4.1 trillion over the next decade, and most of that comes from tax cuts included in the bill. While the legislation’s tax provisions include some offsetting measures through energy tax credit terminations and health tax reforms, the savings from those changes do not outweigh massive revenue losses from extending and expanding the TCJA.
Looking ahead, as the fiscal trajectory worsens, lawmakers will need to recommit themselves to putting the nation on a more stable path. The good news is that there are many options to reverse course and build a stronger economic future.
Photo by Kevin Dietsch/Getty Images
Further Reading
Should We Eliminate the Social Security Tax Cap?
There have been a number of proposals to increase, eliminate, or otherwise adjust the payroll tax cap as a way to shore up Social Security’s finances.
No Taxes on Tips Will Drive Deficits Higher
Here’s how this new, temporary deduction will affect federal revenues, budget deficits, and tax equity.
Six Charts That Show Why Corporate Tax Revenues are Low in the U.S. Right Now
Compared to historical trends and other advanced economies, corporate tax revenues in the United States are low.