FOR IMMEDIATE RELEASE
St. Paul, MN — As Minnesota representatives introduce bills that would replicate certain tax provisions from the federal H.R. 1 law, it is important to take a closer look at how they fall short of their promises.
The TL;DR: H.R. 1’s “middle-class tax cuts” — like the so-called “no tax on tips” or “no tax on overtime pay” — are not all what they’re hyped up to be.
First, the new tax provisions in H.R. 1 purported to be for average Americans are only a small piece of the overall tax package, and expire in a few years. These include a limited tax exemption for some workers who earn tips, a tax deduction for some overtime pay, a new tax deduction for some seniors, and a limited ability to take a tax deduction for loan interest for certain car loans.
Second, these policies are poorly designed and not effective at lifting up low- and middle-income people. They are structured in ways that do little to nothing for the lowest-income folks, and they prioritize certain groups of people, such as seniors and people who work jobs that get tips or overtime, instead of pursuing policies that would address the economic challenges facing working-class Americans regardless of their age or line of work.
Though these tax cuts were advertised to help average Americans to better make ends meet, ITEP finds they won’t do much for the 60 percent of taxpayers making less than $92,100, who can expect to see $380 or less in tax cuts from these provisions in 2026. The tax deductions for some tips and overtime pay, for example, would benefit only 3 percent and 9 percent of U.S. households, respectively, according to the Tax Policy Center.
Moreover, all of these federal provisions expire at the end of 2028.
One difference with some of the tax cuts being considered in the Minnesota House is that they’d be made permanent. Unfortunately, that wouldn’t make these state provisions any more effective at boosting the incomes of middle-class Minnesotans than the federal provisions are.