We investigate how and why the impact of the 2025 Budget Reconciliation Act, also known as the One Big Beautiful Bill Act (OBBBA), on federal tax burdens varies by race and ethnicity.

TPC’s prior estimates show that White households gain significantly more on average than Black and Hispanic households from the tax provisions of OBBBA. We find that those average differential impacts are largely due to White households’ higher average incomes, as households with higher incomes gain more from OBBBA both in dollar terms and percentage changes in after-tax income. We estimate that differential impacts within income groups relate to differences by race and ethnicity in household composition and the types and amounts of income, benefitting Black and Hispanic families in the bottom two quintiles and White families in the top 5 percent.

Focusing on income groups with a large differential impact, we find that Black households and Hispanic households within the lower two income quintiles gain relatively more than White households, in large part due to their household composition, including the presence and number of children. Among the top 5 percent of households by income, White households gain relatively more than Black and Hispanic households, in large part because they have more tax-favored business income.

Understanding the sources of OBBBA’s differential impacts provides policymakers with a clearer picture of how tax policies interact with longstanding differences across racial and ethnic groups and a stronger foundation for developing more fair and effective tax policies.