Bill raises standard deduction, eliminates capital-gains tax break

What it does

This bill raises the standard deduction substantially (to $75,000 for married couples, $50,000 for single filers) and replaces the current progressive tax-bracket system with a new one featuring a flat 25% rate on income up to $200,000 (married), then 30%, 40%, 50%, and 70% rates on higher brackets. It also eliminates preferential tax rates on capital gains, treating investment income the same as wages. The net effect is a significant tax cut for middle-income earners due to the higher standard deduction, but higher earners and investors face higher marginal rates and loss of capital-gains preference.

Why we flagged it

The bill replaces the current tax code's bracket structure with a new one that lowers rates on the first $200k of income (married) but raises marginal rates on higher income and eliminates capital-gains preference. This is a structural tax reform, not a simple cut or increase—it redistributes the tax burden across income levels.

What the text implies

• Elimination of capital-gains preference (Section 1(e)) means investment income is now taxed at ordinary rates up to 70%, a major shift that affects retirement accounts, stock portfolios, and real-estate gains—not just high earners but middle-class savers.
• The standard-deduction increase to $75k (married) is substantial but applies only to 2026 onward; the bill does not address whether this deduction will be indexed for inflation or frozen, creating long-term uncertainty.
• Repeal of the 'marriage penalty' phaseout (Section 1(f)(1)(E)) may affect the tax treatment of married couples filing jointly, though the new brackets appear to accommodate joint returns.
• The conforming amendments to Section 1(f) reset the cost-of-living adjustment baseline to 2026, meaning future bracket adjustments will be measured from the new 2026 brackets, not historical ones—this could affect long-term bracket creep.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

Middle-income households benefit from the higher standard deduction and lower initial tax rates (25% vs. current 10–12%), reducing their tax burden. However, high-income earners and investors lose the preferential capital-gains rate (currently 15–20%, now 25–70%), and the bill's long-term distributional effect depends on whether the standard-deduction gain outweighs bracket compression for upper-middle earners. The repeal of capital-gains preference is a genuine cost to investment income recipie

Who stands to gain

• middle-income wage earners (via higher standard deduction and lower initial rates)
• low-income households (25% rate on first bracket)

Named in the bill

Internal Revenue Code of 1986, Section 63(c)(2), Section 1(a), (b), (c), (d), (e), (f), capital gains, standard deduction, cost-of-living adjustment (COLA)

Where it stands

• Jan 30, 2026 — Introduced · Congress.gov: “Introduced in House”
• Jan 30, 2026 — Referred to House Committee on Ways and Means · Congress.gov: “Referred to the House Committee on Ways and Means”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.