Discover How Making the Tax Cuts Permanent Will Boost the Economy!

Tax policies play a crucial role in shaping economic growth and fiscal stability. The Tax Cuts and Jobs Act (TCJA) of 2017 introduced significant changes to individual, estate, and business tax provisions that are set to expire in 2026. Permanently extending these expiring provisions could have far-reaching implications for the economy.

Key Findings

1. Extending the expiring tax provisions would boost long-run economic output by 1.1 percent, national income by 0.4 percent, the capital stock by 0.7 percent, wages by 0.5 percent, and create 847,000 full-time equivalent jobs.
2. Over the 2025-2034 budget window, the federal revenue losses would amount to $4.5 trillion. However, economic growth is expected to offset $710 billion of these losses, leaving a considerable deficit increase.
3. The tax cuts would lead to a rise in after-tax income by 2.9 percent in 2026, with 62 percent of filers witnessing tax reductions.

The Expiring Individual and Estate Tax Changes

As of January 1, 2026, the following provisions of the TCJA are set to expire:

• Lower tax rates and wider thresholds across most brackets
• Larger standard deduction and maximum child tax credit
• Elimination of personal exemptions and limitations on certain deductions

The Expiring Business Provisions

The business provisions that have either expired or are phasing out include:

• 100 percent bonus depreciation
• Research & development expensing
• EBITDA-based limitation on the net business interest deduction

Economic Effects

Extending the expiring tax provisions would have both positive and negative economic effects:

1. Economic output, capital stock, wages, and job creation would all see a boost with permanent extensions.
2. The tax cuts would lead to a reduction in federal revenue by $4.5 trillion, increasing the budget deficit by $5.4 trillion over the next decade.
3. Long-term debt-to-GDP ratio is projected to increase significantly under the proposed tax cuts.

Distributional Effects

Permanently extending the expiring tax provisions would result in varying after-tax income increases for different income brackets:

• The top quintile would see a 3.3 percent increase, while the bottom quintile would see a 2.8 percent increase.
• The average tax rate is expected to drop, with 62 percent of filers experiencing a tax cut.

In conclusion, the decision to extend the expiring tax provisions of the TCJA will have profound implications for the economy, federal revenue, and individual taxpayers. It is crucial to carefully consider the long-term effects and trade-offs associated with these tax policy decisions. Stay informed on the latest tax policies to understand how they impact you and the broader economic landscape.