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Issue explainer

Federal income taxes

Congress sets federal income tax rates, and a major 2025 law made most of the 2017 tax cuts permanent and added new temporary deductions. The debate now is whether taxes should go lower, stay about where they are, or rise on high earners and corporations to pay for programs or cut the deficit.

The basics

The federal income tax is charged on what people and businesses earn. Individuals pay rates that rise with income, in seven brackets from 10% to 37%1. Corporations pay a flat 21% rate on their profits1.

An earlier law, the Tax Cuts and Jobs Act (TCJA, Public Law 115-97), lowered individual rates, but those lower rates were set to expire after 20251.

On July 4, 2025, the President signed Public Law 119-212. It is widely known as the One Big Beautiful Bill Act1, and the IRS now calls it the Working Families Tax Cuts2. The law made the TCJA individual rates permanent, raised the standard deduction to $31,500 for married couples filing jointly in 2025, and raised the child tax credit to $2,200 per child1. It also raised the cap on the state and local tax (SALT) deduction to $40,000 for 2025, rising 1% a year through 20291.

The law added new deductions that run from 2025 through 2028: up to $25,000 of tip income, up to $12,500 of overtime premium pay ($25,000 for joint filers), and an extra $6,000 for people 65 and older2. These shrink for people with higher incomes2.

The Congressional Budget Office (CBO), Congress's nonpartisan scorekeeper, estimated the law will add $3.4 trillion to federal deficits from 2025 to 2034, or $4.1 trillion when extra interest costs are counted3. Supporters say lower taxes will help the economy grow. Critics say the country cannot afford the added debt.

Key terms

Tax bracket
A range of income taxed at one rate. Only the income inside that range is taxed at that rate, not your whole income. Federal rates run from 10% to 37%1.
Standard deduction
A flat amount you subtract from your income before tax is figured, if you do not itemize. For 2025 it is $15,750 for single filers and $31,500 for married couples filing jointly1.
SALT deduction
A deduction for state and local taxes you paid, such as property taxes, for people who itemize. The cap is $40,000 for most filers in 2025, rising 1% a year through 2029, then dropping back to $10,000 in 20301.
Child tax credit
A credit that directly lowers the tax bill of families with children. It is now up to $2,200 per child and adjusts for inflation1.
Deficit
The gap in one year between what the federal government spends and what it collects. CBO projects a $1.9 trillion deficit for fiscal year 20264.

In Texas

Texas has no state income tax. Since 2019 the Texas Constitution has banned a tax on individuals' incomes, after voters approved Proposition 4 with about 74% of the vote5. So for Texans, the income tax fight is almost entirely federal.

Texas relies on sales and property taxes instead. Sales tax makes up 58% of state tax collections6. In November 2025, voters raised the school property tax homestead exemption from $100,000 to $140,000, and to $200,000 for homeowners who are 65 or older or disabled7.

Because Texans pay no state income tax, the federal SALT deduction matters here mainly for homeowners who itemize and pay large property tax bills. The higher $40,000 cap runs through 2029 and then falls back to $10,0001.

How people see it

The strongest case for each view, in terms its supporters would recognize. We don't pick a side.

Cut taxes across the board

Supporters say lower rates for everyone, including top earners and businesses, leave more money with the people who earned it. Supporters say lower taxes on businesses and investment encourage companies to hire, build and stay in the U.S. They argue the fix for deficits is controlling spending, not raising taxes.

Cut taxes mainly for middle and lower earners

Supporters say relief should go to working families who feel rising prices the most, through a bigger child credit, a bigger standard deduction or breaks on tips and overtime. They argue this puts money in the hands of people who spend it in their communities, without new breaks at the top.

Keep rates about where they are

Supporters say families and businesses need stable, predictable rules after years of expiring tax provisions. With deficits already large, they argue Congress should avoid new tax cuts it cannot pay for, and avoid tax hikes that could slow the economy.

Raise taxes on top earners and corporations

Supporters say the highest earners and large corporations can afford to pay more, and that recent tax cuts gave them a large share of the benefit. They would use the money to protect programs like Medicaid, help working families, or bring down the deficit.

Raise taxes significantly for major new programs

Supporters argue that other wealthy countries pay for broader public services through higher taxes, and that Americans would benefit from the same. They would raise taxes, especially on high incomes and wealth, to fund programs such as universal child care or health coverage that they see as paying off over time.

Who decides

  • U.S. Congress: Writes federal tax law. Tax bills must start in the House of Representatives.
  • President: Signs or vetoes tax bills. The IRS, part of the Treasury Department, carries out the law.
  • Texas Legislature and Texas voters: Set state taxes. Undoing the state ban on an income tax would take a constitutional amendment passed by two-thirds of each chamber and approved by voters.
  • Cities, counties and school districts: Set local property tax rates within limits set by state law.

Questions to ask a candidate

  • The new deductions for tips, overtime and seniors expire after 2028. Should they be made permanent, and how would you pay for that?
  • Would you vote to raise, keep or cut the top 37% income tax rate and the 21% corporate rate?
  • If a tax cut adds to the deficit, would you require spending cuts or other revenue to make up for it?
  • Should the SALT deduction cap stay at $40,000, return to $10,000 in 2030 as scheduled, or be removed?

Last reviewed 2026-09-26. Spotted something wrong? Every claim links to its source so you can check it yourself.

Sources

  1. Tax Provisions in P.L. 119-21, the FY2025 Reconciliation Law (R48611)Congressional Research Service
  2. Working Families Tax Cuts: Tax deductions for working Americans and seniorsInternal Revenue Service
  3. Effects on Deficits and the Debt of Public Law 119-21 and of Making Certain Tax Policies in the Act PermanentCongressional Budget Office
  4. The Budget and Economic Outlook: 2026 to 2036Congressional Budget Office
  5. Texas Proposition 4, Prohibit State Income Tax on Individuals Amendment (2019)Ballotpedia
  6. Texas Comptroller Huffines Reports State Sales Tax Revenue Totaled $4.6 Billion in AugustTexas Comptroller of Public Accounts
  7. Texas Proposition 11, Increase Homestead Tax Exemption for Elderly and Disabled Amendment (2025)Ballotpedia