Trump’s 2025 Tax Proposals to Reshape Finances for Low-Income and Small Businesses

By Brian Figeroux, Esq.

In 2025, President Donald Trump’s tax proposals are poised to significantly reshape the financial landscape for both low-income individuals and small businesses in the United States. While the administration touts these changes as catalysts for economic growth and competitiveness, a closer examination reveals a complex array of benefits and challenges for these groups.

Impact on Low-Income Individuals

Elimination of Social Security Taxes

One of the hallmark features of President Trump’s tax plan is the proposal to eliminate federal taxes on Social Security benefits. This change aims to provide financial relief to retirees by allowing them to retain more of their benefits. However, analyses indicate that the primary beneficiaries of this policy would be wealthier retirees. According to the Penn Wharton Budget Model, households in the highest income brackets could see annual tax reductions ranging from $1,625 to $2,450. In contrast, middle-income households might experience a modest savings of approximately $340, while those in the lowest income brackets could see savings as minimal as $15 annually. This disparity arises because higher-income retirees are more likely to have a portion of their Social Security benefits taxed under current law, whereas lower-income individuals often fall below the taxable threshold. Moreover, this policy is projected to reduce government revenue by $1.5 trillion over the next decade, potentially accelerating the insolvency of the Social Security Trust Funds from December 2034 to December 2032. 

Shift Toward Consumption-Based Taxation

The administration has also signaled a shift toward a flat consumption tax system, which would replace traditional income taxes. While this approach aims to simplify the tax code, it could disproportionately impact low-income individuals. Consumption taxes, such as sales taxes, take a larger percentage of income from low earners, as they spend a higher proportion of their earnings on necessities. The Center for American Progress estimates that this shift could result in an average tax increase of $5,900 for middle-income households, while the top 0.1% of earners might receive an average tax cut of $2 million. 

Potential Reductions in Social Programs

To offset the revenue losses from proposed tax cuts, there is a possibility of significant reductions in funding for social programs that predominantly assist low-income individuals. Programs such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and housing assistance could face budget cuts. The Center on Budget and Policy Priorities warns that such reductions would adversely affect millions of Americans who rely on these services for basic needs. The potential introduction of work requirements for Medicaid recipients further complicates access to healthcare for low-income populations, potentially leading to widespread loss of coverage. 

Impact on Small Businesses

Corporate Tax Rate Adjustments

President Trump’s tax plan includes a proposal to reduce the federal corporate tax rate from 21% to 20%. This reduction is designed to enhance the competitiveness of U.S. businesses on a global scale and stimulate economic growth. While large corporations are poised to benefit significantly from this change, the impact on small businesses is more nuanced. Many small businesses are structured as pass-through entities—such as sole proprietorships, partnerships, and S-corporations—where business income is taxed at the owner’s individual tax rate rather than the corporate rate. Therefore, the direct benefit of a corporate tax rate reduction may be limited for these entities. 

Extension of the Section 199A Deduction

To address the unique needs of pass-through entities, the administration proposes extending the Section 199A deduction, which allows qualifying small business owners to deduct up to 20% of their business income. This provision, initially introduced under the Tax Cuts and Jobs Act of 2017, is set to expire but would be made permanent under the new plan. The House Ways and Means Committee suggests that making this deduction permanent could result in the creation of over 1 million new jobs annually by enabling small businesses to retain more capital for investment and expansion. 

Modifications to Section 179 Expensing

The tax proposals also advocate for increasing the Section 179 expensing limit, which permits small businesses to immediately deduct the cost of qualifying equipment and property. The current limit, adjusted for inflation, stands at $1.25 million for 2025. Doubling this threshold would significantly enhance small businesses’ capacity to invest in new equipment and technology, thereby fostering growth and operational efficiency. 

Repeal of De Minimis Tax Exemptions

A notable change affecting small businesses engaged in e-commerce is the repeal of de minimis tax exemptions, which previously allowed duty-free imports of low-value packages (valued under $800). This exemption facilitated cost-effective international trade for small businesses. The removal of this provision means that small businesses will now incur additional duties and administrative burdens on low-value imports, potentially increasing operational costs and affecting pricing strategies. Shopify President Harley Finkelstein emphasized that such exemptions are crucial for small businesses to keep costs down and compete effectively in the global marketplace. 

Impact & Implications

President Trump’s 2025 tax proposals present a complex landscape for low-income individuals and small businesses. While certain measures, such as the elimination of taxes on Social Security benefits and reductions in corporate tax rates, offer financial benefits, the distribution of these advantages appears to favor higher-income individuals and larger corporations. Low-income individuals may face increased tax burdens due to shifts toward consumption-based taxation and potential cuts to essential social programs. Small businesses could benefit from extended deductions and expensing provisions, yet they also confront challenges like the repeal of de minimis tax exemptions, which may elevate operational costs. As these proposals advance through the legislative process, it is imperative to consider their long-term implications on economic equity and the vitality of small enterprises.