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Federal Tax

Extending TCJA Tax Cuts Would Cost $3T, Policy Group Finds

Tim Shaw  

Tim Shaw  

According to new analysis by a tax policy think tank, the budget deficit would increase more than $3 trillion over 10 years if Tax Cuts and Jobs Act (TCJA; PL 115-97) provisions were permanently extended and would mostly benefit higher-earning households.

A total 23 individual and business tax TCJA provisions are currently slated to expire December 31, 2025. A model released November 30 by the Tax Policy Center (TPC) suggests that just making permanent the individual and estate tax cuts alone would incur long-lasting budget hits without factoring interest.

“The provisions TPC modeled include extending the TCJA’s lower individual income tax rates; its increased standard deduction, child tax credit, and alternative minimum tax (AMT) exemption; its reduced estate tax; and its extra 20 percent deduction for qualified income of pass-through businesses such as partnerships and sole proprietorships,” wrote TPC Senior Fellow Howard Gleckman in breaking down the group’s findings. “They also include revenue-raising provisions such as permanent repeal of the personal exemption and extending the $10,000 cap on the state and local tax (SALT) deduction.”

The TPC estimated that most of the beneficiaries would be those making more than $400,000, especially the top 20% earners. Over 40% of the benefits would go to the top 5%, Gleckman said. He clarified that extensions would not “fully affect” the budget until fiscal year 2027. Tax revenues from then to fiscal year 2036 would fall by roughly $3.1 trillion, but $3.7 trillion during the period 2033 to 2042.

“The biggest tax cuts would come from continuing the individual income tax rate reductions, retaining the TCJA’s large [alternative minimum tax] exemption and increased standard deduction, and extending the special 20 percent deduction for pass-through businesses,” Gleckman explained.

In September, Representative Vern Buchanan, a Florida Republican, introduced legislation that would make the TCJA’s changes permanent. Dubbed simply the TCJA Permanency Act (HR 8913), the proposed bill has the support of several key GOP lawmakers, including Kevin Brady of Texas, the party’s lead representative on the House Ways and Means Committee.

“In 2017, Republicans delivered the most comprehensive overhaul of the U.S. tax code in more than three decades and achieved historic economic growth,” Buchanan said in a press release September 22. “With Americans continuing to suffer under the weight of record-high inflation and an uncertain economic future, we need to provide some much-needed relief and certainty to hardworking families and ensure these tax cuts do not expire.”

Earlier this year, in June, the Congressional Budget Office in its own projection estimated that extending both the individual income and estate tax provisions of TCJA would cost as much as $2.7 trillion through 2032. This accounts for offsets from TCJA revenue-raisers like the SALT deduction cap.

In 2018, the Tax Foundation argued in a paper that TCJA individual income tax extensions would be worth the cost because it would grow the economy in the long-term. “If the current iteration of TCJA goes unchanged and these parts of the bill are allowed to expire, then households will see higher tax rates and a more complicated filing system when they file their taxes in 2026,” the authors said.

Keeping the TCJA intact is also a priority of the American Legislative Exchange Council (ALEC), which in April 2022 adopted a model resolution urging Congress to make permanent the 23 provisions expiring in 2025.

“Allowing this essential tax relief to expire would undoubtedly harm hardworking American taxpayers, slow the growth of the U.S. economy, and further harm America’s ability to compete,” said ALEC chief economist and executive vice president of policy Jonathan Williams.

Gleckman, however, predicted that the Buchanan bill, or similar legislation, “would die in the Democratic-controlled Senate without ever even getting a vote.”

 

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