By
Derek Hamilton
June 24, 2025
We have recently written about the One, Big, Beautiful Bill (OBBB) and its implications for corporations, which has been passed by the House of Representatives and is currently being debated in the Senate.
One of the main objectives of the OBBB is to extend the portions of the Tax Cuts and Jobs Act (TCJA) that are set to expire at the end of this year, including lower individual income tax rates, a higher standard deduction, and a larger child tax credit. However, President Trump promised several additional tax cuts for individuals on the campaign trail that could prove meaningful.
No tax on tips
While tips are currently taxed as ordinary income, the OBBB would provide workers a deduction equal to the qualified tips received. The proposal defines which industries would receive the tip deduction and contains rules intended to prevent companies from increasing the share of income derived from tips. The Senate is also discussing a cap on the size of allowed deduction.
No tax on overtime
Like tips, the OBBB would offer a deduction equal to compensation from qualified overtime. The Senate would like to cap the size of deduction here as well.
No tax on Social Security
No taxes on Social Security were consistently promised by Trump during the campaign, however, House Republicans decided to approach this issue from a different angle. The OBBB would provide a $4,000 enhanced deduction for seniors, with that amount reduced proportionally by any income above a certain level. The Senate is debating whether to increase this amount.
No tax on car loan interest
Under this provision, individuals would be allowed to deduct up to $10,000 in interest paid on auto loans. Like the deduction for seniors, this deduction would decrease in proportion to income above a certain level. There are several rules defining what qualifies as a passenger vehicle for this deduction, most importantly excluding all vehicles where final assembly does not occur within the US.
The new provisions contain income limits intended to focus the tax benefit on low and middle-income households and are designed to expire after 2028 to limit the overall cost of the OBBB. While tariffs should disproportionately hurt these households, the benefit from tax cuts should mostly benefit these same households in 2026. Thus, low levels of confidence in that group may begin to recover. We continue to believe this legislation will become law later this year.
University of Michigan, current consumer sentiment for bottom third of income, three-month average
Sources: Macquarie, Macrobond, University of Michigan.
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