If you’re lucky enough to notice a net-income boost from the tax bill President Trump just signed, don’t rush out and spend it. For Trump giveth with one hand and taketh with the other.
The latest Trump “tax cuts” aren’t really tax cuts in the sense that tax rates will decline from 2024 to 2025. Tax rates will mostly stay the same. But without the tax bill, tax rates would have returned to 2016 levels, and a majority of Americans would have faced higher taxes. That’s because the individual income tax cuts Trump signed into law in 2017 were temporary and due to expire at the end of this year.
The 2017 tax rates are now permanent, which will be a big savings for some taxpayers who would have been zapped if the rates had gone back to 2016 levels. The typical taxpayer will owe about $2,600 less per year than if the 2017 tax cuts had expired. The top 1% of earners will owe $67,000 less. Lower-income families with relatively low taxes will save only about $150 per year.
There are also a few new tax cuts, such as the elimination of taxes on income from tips and overtime pay, up to certain limits. Those expire in 2029, when Trump, presumably, leaves office. The new law also increases the deductibility of state and local taxes, which will mainly benefit wealthier homeowners.
If the tax-cut law makes you feel richer, don’t celebrate yet. Other developments are brewing that could offset any savings from the tax cuts. Here are three factors that could raise costs for families during the next few years.
Trump’s trade war is far from over. Though he has delayed some tariffs more than once, others have gone into effect, pushing the average tax on some $3 billion worth of imports from 2.5% to around 15%. That’s real money US importers pay upfront, then pass on to their customers, all the way to ordinary consumers buying products from retailers.
Some people wonder why the Trump tariffs haven’t shown up yet as higher prices, given that Trump started imposing new tariffs all the way back in February. The answer is inventories. Importers saw the tariffs coming and massively stocked up in the first quarter. Imports surged in the first quarter, then plunged in the second. That led to large inventories of pre-tariff goods and much smaller inventories of costlier post-tariff goods. Prices will rise as pre-tariff inventories run out and post-tariff products hit the market.
The Yale Budget Lab estimates that at current levels, the Trump tariffs will push inflation about 1.7 percentage points higher, costing the typical family about $2,300 per year. That’s almost as much as the Trump tax cuts will supposedly save the average family. Some consumers won’t notice the higher costs. Those who will notice are most likely lower-income shoppers who need the imported goods hit hardest by tariffs, including clothes, shoes, backpacks, electronics, and auto parts. By the end of the year, the higher costs imposed by the Trump tariffs should be evident at a retailer near you.
President Trump holds a gavel after signing his signature bill of tax breaks and spending cuts at the White House on July 4 in Washington, D.C., surrounded by members of Congress. (AP Photo/Julia Demaree Nikhinson) ·ASSOCIATED PRESS
The government’s annual deficits are already close to $2 trillion per year, and they’re going higher due to the Trump tax-cut bill, which will add at least $4 trillion to the national debt during the next decade. That’s on top of $22 trillion in new borrowing that’s already baked in. The Treasury is borrowing unprecedented amounts of money, and it may already be affecting markets by pushing long-term interest rates higher than they’d otherwise be. If there’s so much Treasury debt coming onto the market that there aren’t enough buyers, rates will have to rise to lure investors into an asset they’d otherwise pass by.
Long-term Treasury rates are the peg for mortgage rates and nearly all other consumer and business borrowing rates. So, if Treasury rates are higher, all other rates are too. Homebuyers have been hoping for a break on mortgage rates, but they’ve stayed close to 7% for most of 2025. Higher rates can be expensive. An interest rate that’s one point higher on a $420,000 loan adds $222 in higher interest costs per month, or $2,664 per year. There goes your Trump tax savings again.
There have been so many warnings about a US debt crisis during the past 20 years that it sounds like a perennial false alarm. But there are finally signs that it isn’t, mainly in the bond market, where rates have been rising when ordinarily they’d be falling. Higher rates are only the first shock. Higher rates mean ever-higher interest payments on the federal debt, which is already starting to crowd out other forms of government spending. At some point, interest payments will become unsustainably high, forcing Congress to raise taxes, cut spending, and get the federal budget back on a sustainable path.
This reckoning is going to hit nearly every taxpayer, through either higher taxes, benefit cuts, or both. One fix could be a federal value-added tax, similar to a national sales tax, that pushes up prices for many everyday things, similar to the Trump tariffs, except not limited to imports. There will be trims to Social Security and Medicare, higher income taxes, and higher corporate taxes. This austerity will slow the economy and maybe cause a recession, further cutting into incomes. The wealthy will pay the most, but almost everybody will pay something.
Are you ready? Most Americans aren’t. The nation has been on an extraordinary binge for the past 20 years, living on borrowed money like literally no other nation on earth. It now seems like an American entitlement to spend beyond your means, in perpetuity. It isn’t, and those who save for a rainy day will eventually have their moment.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
