JABLOKOW: Tax Hikes Loom — Why Congress Must Act to Save the TCJA

The expiration of key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) at the end of 2025 presents an opportunity for Congress to foster continued economic growth and protect families from higher taxes. If lawmakers fail to extend these provisions, 62 percent of filers will see a tax increase.
A failure to extend the TCJA’s provisions will also reverse essential tax cuts for small businesses. It will also lead to a more complex tax code for families. Permanently extending these provisions should be a priority for lawmakers.
The TCJA was a landmark piece of tax reform policy. It lowered rates while broadening the tax base and resulting in a more efficient and equitable tax code. By simplifying the tax code for individual filers, the TCJA made it easier for families to navigate their taxes while reducing their tax burden. Some such provisions include lowering marginal tax rates, creating limitations on itemized deductions, and expanding the standardized deduction.
Each of these provisions simplified the tax code for individual filers. These tax cuts directly increased disposable income, increasing investment and economic stimulus. Should these provisions expire in 2025, the reduced marginal tax rates would be changed to higher pre-TCJA levels.
Additionally, the TCJA fostered a 4.7 percent increase in corporate investment, a significant achievement. This is due to the TCJA lowering the corporate income tax rate from 35 percent to 21 percent. This had the dual effect of making corporations more competitive globally and allowing them more liquid assets to invest in the economy. As policymakers create and analyze new tax legislation, they should continue to prioritize opportunities for corporate investment and encourage consumer participation.
The TCJA enhanced competitiveness among all businesses, specifically small businesses. One provision that helped small businesses thrive is the 20 percent business deduction or 199A deduction for pass-through entities (businesses where profits flow through individual owners for taxation). Small-business owners would face significant tax increases without this tax code deduction. More than 33 million businesses are organized as pass-throughs, meaning a crucial part of the economy would be negatively affected.
Extending the 199A provision would allow small businesses to continue to invest in expansion, innovation, research and development. This is critical in an environment of high inflation. Additionally, the 199A deduction gives these pass-through businesses a greater ability to compete with larger corporations. Smaller businesses would lose their advantage if the 199A deduction is not extended, as larger corporations would still operate with the 21 percent rate.
Another key provision set to expire in 2025 that benefits businesses and families is the state-and-local tax (SALT) deduction cap. The TCJA limited the deduction to $10,000 for individuals and pass-through businesses. The SALT deduction allows taxpayers to deduct state and local taxes from their federal returns. Thus, this part of the tax code is a subsidy for high-tax governments nationwide, with the rest of the nation taking the hit. Beyond retaining the cap, lawmakers should continue to investigate lowering the cap for individuals and businesses beyond $10,000 or zeroing out the deduction altogether.
Maintaining the changes to the alternative minimum tax is crucial for taxpayers. The AMT system is complex and requires taxpayers to calculate their liability under two tax systems and pay the greater of the two. The TCJA helped expand exemptions from this system. Allowing these AMT exemptions to expire would create significant burdens for taxpayers and open the door for litigious auditors at the IRS to seize on the confusion.
Lawmakers have an opportunity to build on the successes of the TCJA and make these tax cuts permanent. Keeping the tax code stable is a foundational element in tax reform. Stability is vital to those who depend on a simple tax code when making economic decisions. Permanently extending pro-business and pro-worker provisions from the 2017 law will ensure the years ahead will be marked by financial stability and vibrancy.