Were changes to marginal tax rates in 2025 temporary or permanent and what are the projected long-term effects?
Executive summary
Congress’s 2025 reconciliation package — the One, Big, Beautiful Bill Act (OBBBA) signed July 4, 2025 — made most of the 2017 Tax Cuts and Jobs Act (TCJA) individual-rate structure effectively permanent, meaning the seven marginal rates (10–37%) no longer automatically expire at the end of 2025 (OBBBA’s actions are described as making those provisions permanent) [1]. At the same time, OBBBA introduced a mix of temporary expansions (many deductions and credits effective 2025–2028) and changes to investment tax rules that alter marginal effective tax rates on capital — producing near-term tax relief for many taxpayers and modelled long-run economic impacts that vary widely by analyst [2] [3] [4].
1. What changed and which rate changes are permanent?
The reconciliation law passed in mid‑2025 (the OBBBA) made the TCJA’s seven ordinary‑income marginal rates — 10%, 12%, 22%, 24%, 32%, 35%, 37% — part of the new permanent baseline for individual taxation and kept those top statutory rates in place going into 2026 [1]. Multiple reporting and practitioner guides summarizing the 2025 and 2026 schedules show the same seven rates and IRS tables for those years [5] [6] [1].
2. What remains explicitly temporary in OBBBA?
OBBBA created several new deductions and expansions that are explicitly time‑limited — for example deductions for qualified tips, overtime pay, certain auto‑loan interest, and enhanced senior deductions that are effective through 2028 [2] [7] [8]. Tax trackers and major tax‑prep firms also flag temporary provisions that run 2025–2028 and note that some SALT adjustments and similar features have phase‑ins or phase‑outs [9] [7].
3. Investment and business provisions that shift marginal effective rates
Beyond statutory individual rates, the law restored or expanded business tax preferences that lower marginal effective tax rates on investment — notably reinstating full expensing for equipment and other assets that had been phasing down — a change the Congressional Research Service says materially reduced marginal effective tax rates for affected assets [3]. Those business provisions change incentives for capital formation and shift the marginal effective tax burden away from some investments [3].
4. Projected long‑run macroeconomic effects — competing estimates
Analysts disagree sharply on the long‑run GDP, revenue and distributional effects. Tax Foundation modeling of major Republican proposals associated with 2025 reforms projected sizable long‑run GDP gains and wage increases in some scenarios (e.g., a modeled plan that would boost long‑run GDP by 2.5% and raise wages by 1.4%) but those models often assume different permanent policy sets and revenue treatments [10]. By contrast, other Tax Foundation analysis of alternative “Big Beautiful” proposals found a more modest GDP gain (0.8%) but large revenue reductions (roughly $4.0 trillion over 2025–2034 in one House plan simulation) [11]. Bipartisan and independent policy shops emphasize large revenue costs to extending TCJA‑era cuts without offsets and highlight fiscal risks if offsets are not enacted [12].
5. Distributional and fiscal tradeoffs that matter for long run effects
Whether reforms raise growth or add to deficits depends on which provisions are permanent, which are temporary, and how lawmakers pay for changes. The Congressional Budget Office and budget analysts warned that allowing TCJA elements to lapse would raise revenue relative to extending them; by the same token, permanently extending or expanding cuts costs tens to hundreds of billions over a decade — a dynamic flagged by CBPP and others in debates about progressivity and revenue [13] [12]. Proponents emphasize pro‑growth capital incentives and permanent rate certainty; opponents stress large long‑run revenue losses and distributional gains skewed to higher incomes in some proposals [11] [13].
6. Practical takeaways for taxpayers and policymakers
For individual taxpayers, the headline marginal rate structure is no longer scheduled to revert at end‑of‑2025 because OBBBA made the ordinary‑income rate structure permanent, but many new deductions and generous changes are explicitly temporary through 2028 [1] [2]. For policymakers, the choice remains which temporary items to extend or make permanent and how to offset costs; different analytical models produce different growth and revenue tradeoffs depending on those choices [10] [11].
Limitations and missing items: available sources do not mention specific CBO score figures for the exact OBBBA revenue impact in this summary, nor do they provide a single consensus macroeconomic projection; the numbers presented above come from the policy analytic pieces shared [10] [11] [3].