President Donald Trump and his administration have been busy changing many things over the past few months. For instance, he’s ending paper Social Security checks, requiring electronic fund transfers. That will save the government some money, but close to 500,000 Americans receive paper checks, so the change will be disruptive for them.
One of the most recent new developments was unveiled on Monday, May 12 — a big tax bill introduced by Republican members of the House of Representatives. It encompasses many proposals, including a new “MAGA” investment account, and it will likely affect you and me — perhaps changing how we save. So here’s a brief look at some of what it contains.
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How the tax plan could help you save
The draft of the expansive tax bill includes a provision increasing the tax deduction for state and local taxes paid from $10,000 to $30,000. For those whose taxes have exceeded $10,000 — and for whom itemizing deductions is more worthwhile than taking the standard deduction — this may be a money-saving change. And however many fewer dollars you pay in taxes may be deployed toward your saving for retirement — or some other financial goal.
A tax break is proposed for those who borrow money to buy a car — provided the car is made in America. It also applies to those who earn less than $100,000, with the break phased out at higher income levels.
Another proposal is to increase the standard deduction by $1,000 for individuals. It’s currently, for 2025, $15,000 for those single or married and filing separately, $30,000 for those married and filing jointly or qualifying surviving spouses, and $22,500 for heads of households. The child tax credit, previously and temporarily increased from $1,000 to $2,000, would increase, too, to $2,500 over the next few years.
Some of the Trump administration’s changes or proposed changes for Social Security, such as eliminating taxes on benefits, are likely to hurt its long-term viability. (As my colleague Adam Levy has noted, “Donald Trump and Congress are failing to protect Social Security.”)
The “MAGA” investment account
Another proposal is a new kind of investment account for children, being referred to as a “MAGA account.” (The letters stand for “money account for growth and advancement.”) As proposed, eligible American children would automatically get a tax-exempt account, funded with $1,000 from the U.S. government. That sounds good, but ideally it will be paired with financial education, so that the money is invested effectively and not just left in a low-growth savings account.
Parents could contribute up to $5,000 annually to the accounts, with the money not available for withdrawal until the child turns 18.
These proposed changes can clearly free up many tax dollars that can be deployed into savings and investment accounts, and that’s a good thing. But the news isn’t all good.
The big picture
To offset some of the revenue reductions stemming from these proposed changes, some other changes have been proposed. These include a new 5% tax on money sent abroad by non-U.S. citizens — which is likely to affect migrant workers who often support families back home. Some subsidies for alternative energy technologies are targeted, too — such as a $7,500 subsidy for those buying electric cars. Meanwhile, universities may see the tax rate on their investment income go from 1.4% to possibly 21%. These are just a few examples.
A big way this proposed legislation is being funded is via hefty cuts to Medicaid, which are expected to result in more than $600 billion in savings. The nonpartisan Congressional Budget Office has estimated, though, that the number of people without health insurance will increase by at least 8.6 million by 2034.
Per The New York Times, the overall proposed legislation is estimated to add “at least” $2.5 trillion to the U.S.’s deficit over the coming decade. So while some or many of us may benefit from some or many of its changes, we may all end up paying more in the long run. This is especially true for those who lose access to Medicaid.
Remember, though, that the legislation is not yet set in stone and is very likely to be changed further before any hammers and chisels are called for. And some of the tax breaks, even if passed, will be in effect only until 2029, when Trump’s term ends. So keep an eye on developments in the news — because any changes are likely to affect millions of us.
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