The Trump administration's fiscal year 2027 budget proposal calls for deep cuts to non-defence spending, a dramatic expansion of the military, and a leaner IRS — but with Congress set to draft its own version of the spending bills, the president's blueprint is better read as an opening bid than a final word.

RF Report

The Trump administration unveiled its fiscal year 2027 budget proposal on 3 April 2026, featuring significant reductions to the Internal Revenue Service (IRS) alongside increased defence spending and border security priorities. The budget, set to begin on 1 October 2026, targets a USD 73 billion cut in nondefense spending—approximately 10% below FY2026 levels.

The budget details a significant paradigm shift in federal spending characterised by a 10% reduction in non-defence discretionary funding and a 44% increase in national defence. Key priorities include eliminating “woke” ideologies, dismantling the Department of Education, and terminating “Green New Scam” environmental initiatives across various agencies. Conversely, the budget emphasises strengthening border security, expanding the military, and reinvesting in domestic critical minerals and maritime infrastructure.

The 2027 budget also outlines a dramatic shift in federal fiscal policy, primarily driven by the Working Families Tax Cut Act (WFTC). This legislation is framed as a “once-in-a-generation” move to stabilise national finances while refocusing the tax code on working citizens. While the sources do not mention Value Added Tax (VAT), federal property taxes, stamp duties, or specific transfer pricing adjustments, they detail significant changes to tax administration, credits, and trade-related duties.

Corporate and personal tax systems

The US operates distinct tax frameworks for corporations and individuals, with rates and structures that vary significantly between federal and state levels.

  • Federal corporate income tax: Since 1 January 2018, US corporations have faced a flat federal tax rate of 21% on taxable profits, established under the 2017 Tax Cuts and Jobs Act. Corporations calculate taxable income by subtracting allowable deductions—including wages, interest payments, depreciation, and cost of goods sold—from gross receipts. Beyond federal obligations, businesses must navigate state and local corporate taxes that vary by jurisdiction.
  • Individual federal income tax: The 2024 federal personal income tax system uses seven progressive brackets, ranging from 10% to 37%. Single filers pay the top rate on income exceeding USD 609,351, while married couples filing jointly reach this bracket at USD 731,201. For single filers, brackets begin at 10% for income up to USD 11,600, progressing through 12%, 22%, 24%, 32%, and 35% rates before reaching the maximum 37% threshold. The standard deduction for 2024 stands at USD 14,600 for individuals and USD 29,200 for married couples filing jointly.
  • State tax autonomy: States maintain complete independence in setting tax policies. Income tax rates span a wide spectrum, from Arizona’s modest 2.5% top rate to California’s substantial 13.3%. Ten states employ flat tax rates for all income levels, while others use graduated brackets. States also independently determine corporate income taxes, sales taxes, and property tax structures, often using federal adjusted gross income as a baseline for their calculations.

The Working Families Tax Cut (WFTC) Act 

The WFTC serves as the cornerstone of the administration’s tax strategy, aiming to simplify a “bloated” system.

  • Simplifying the tax code: A primary goal of the WFTC was the elimination of several complex tax credits that the administration viewed as inefficient or overly burdensome. By stripping these out, the budget seeks to reduce the “bureaucratic morass” associated with tax filing.
  • Incentivising educational freedom: Beyond general tax relief, the WFTC introduced a new tax credit designed for states to expand educational options for millions of children. This credit is part of a broader effort to move away from federal micromanagement of education and empower parents to choose school settings that best fit their families’ needs.

Customs, tariffs, and the “America First” trade policy

  • Modernising tariff management: To handle the complexities of international trade, the budget invests USD 136 million into the Automated Commercial Environment (ACE). This technology is critical for managing the payment of tariffs and trade duties, ensuring that collections are processed efficiently. The administration’s goal is to have ACE fully implemented by 1 August 2026, a year ahead of previous schedules.
  • Enforcing reciprocal trade: The administration is doubling down on its “America First” trade policy, which involves holding “trade cheats” accountable through rigorous enforcement of existing customs duties and tariffs. The budget includes a USD 10 million increase specifically for the International Trade Administration (ITA) to bolster these enforcement efforts.

Downsizing the Internal Revenue Service (IRS) 

Significant changes have been made to the Internal Revenue Service (IRS) to reduce its footprint and change how it interacts with taxpayers. A central element of the proposal involves slashing IRS funding by USD 1.4 billion, bringing the agency’s budget down from USD 11.2 billion to USD 9.8 billion. This represents the lowest IRS funding level in over two decades when measured in nominal terms, without accounting for inflation.

Since 1 January 2025, the administration has taken steps to unwind recent expansions of the IRS. This included closing the Direct File programme, which the budget notes cost USD 41 million but only processed approximately 300,000 returns, amounting to a high cost of nearly USD 140 per return.

As part of a broader effort to streamline operations, the IRS has seen its total end-of-year staffing reduced by 27%.

Targeted fees and revenue measures

  • International visitor surcharge: To address a deferred maintenance backlog exceeding USD 40 billion on federal lands, the National Park Service plans to implement a surcharge on international visitors at the most popular parks.
  • TSA and environmental taxes: The budget proposes to gain USD 1.68 billion in additional offsetting collections from the TSA Passenger Security Fee. Notably, this is not described as a fee increase for travellers, but rather an end to the practice of diverting these fees toward general deficit reduction.
  • Hazardous substance superfund: The budget highlights that USD 1.7 billion in taxes authorised by the Infrastructure Investment and Jobs Act and the Inflation Reduction Act will be available in 2027 to finance the Hazardous Substance Superfund programme.