The U.S. House of Representatives led by Republicans recently passed a tax bill that could change how much money you keep after paying taxes. This bill includes big updates like raising the cap on the state and local tax (SALT) deduction increasing the child tax credit and adding new deductions for tips and auto loan interest. While these changes sound exciting they might face changes in the Senate and there’s concern about how they could affect the country’s budget.
What Is the SALT Deduction, and Why Does It Matter?
The SALT deduction lets people subtract some of the taxes they pay to their state and local governments—like property taxes or state income taxes—from their federal taxes. In 2017 the Tax Cuts and Jobs Act (TCJA) put a limit of $10000 on this deduction which hit people in high tax states like New York, New Jersey and California the hardest. These states have higher property and income taxes so the cap meant many residents could not deduct as much as before.
The new bill raises the SALT cap to $40000 starting in 2025 up from a previous plan of $30000. This is great news for people in high tax states especially those with higher incomes who own expensive homes or pay a lot in state taxes. For example if you pay $50000 in state and local taxes you can now deduct $40000 from your federal taxes instead of just $10000. This could save you thousands of dollars.
However there’s a catch. The $40000 cap only applies fully to people earning less than $500000. If you earn more the deduction starts to shrink and it won’t go below $10000. Also this change mostly helps wealthier people because they are more likely to itemize their deductions instead of taking the standard deduction ($15000 for singles and $30000 for married couples in 2025). About 90% of taxpayers use the standard deduction so this change won’t affect most people directly. Still for those in high tax areas it’s a big win.
A Bigger Child Tax Credit
The bill also boosts the child tax credit which helps families with kids under 17. Right now the credit is $2000 per child but the new plan raises it to $2500 per child until 2028. After that it goes back to $2000 and will adjust for inflation. This means families could get a little more money back when they file their taxes which can help with costs like school supplies, childcare or groceries.
However some experts say the credit’s design does not do enough for lower income families. Many low earners can’t claim the full credit because it’s not fully refundable meaning you only get the credit if you owe taxes. For example if your tax bill is $1000 you can only use $1000 of the credit even if you qualify for more. This has sparked debate about whether the credit truly helps those who need it most.
Deductions for Tips and Auto Loan Interest
The bill introduces two new deductions that could excite certain groups. First there’s a “no tax on tips” rule which lets workers like waiters, bartenders or hairdressers deduct their tip income from their taxes through 2028. This is a big deal for people in jobs where tips are a major part of their income especially in places like restaurants or salons.
Second the bill offers a deduction of up to $10000 for interest paid on auto loans also through 2028. This applies to both people who itemize and those who take the standard deduction making it more accessible. However it phases out for single filers earning over $100000 or married couples earning over $200000. If you are paying interest on a car loan this could lower your tax bill especially if you live in a state like Michigan where cars are a big part of life.
Will the Senate Agree?
While the House passed this bill it still needs to go through the Senate where changes are likely. The Senate has different priorities and some senators might not like the cost of these tax breaks. For example raising the SALT cap to $40000 could cost the government about $334 billion over 10 years according to the Penn Wharton Budget Model. That’s money the government won’t collect which could add to the federal deficit—the gap between what the government spends and what it earns.
Some senators especially those worried about the deficit might push for a lower SALT cap or other changes to save money. Others might want to tweak the child tax credit to help lower income families more. There’s also debate about whether the tip and auto loan deductions are the best use of funds. With Republicans holding a slim majority in the Senate negotiations could be tough and the final bill might look different.
What About the Deficit?
All these tax breaks sound great but they come with a cost. The entire tax package called the “One Big Beautiful Bill” could increase the federal deficit by over $4 trillion over 10 years according to the Tax Foundation. The SALT cap increase alone is a big chunk of that. Some lawmakers argue that cutting government spending like on Medicaid could offset the cost but others oppose those cuts. There’s also talk of using tariffs—taxes on imported goods—to raise money but those could raise prices for consumers.
What’s Next?
These changes could make a big difference for some families especially those in high tax states or with kids, tips or car loans. But the bill is not final yet. The Senate might change parts of it and there’s a tight deadline to get it done before the 2017 tax cuts expire at the end of 2025. If you are planning your finances keep an eye on this bill—it could affect your taxes next year.
In short the House’s tax plan offers relief for some but raises questions about fairness and the deficit. Whether you are a homeowner, a parent or a tipped worker these changes could put more money in your pocket or spark debates about who really benefits.