Tax Cuts and Jobs Act
How should policymakers think about the expiration of provisions in the TCJA?
Most individual income tax provisions of the Tax Cuts and Jobs Act (TCJA) expire at the end of 2025. This report analyzes three options for tax reform surrounding expiration: a scenario in which all elements are extended (“Full Extension”), an option which preserves cuts for all but the richest Americans (“Partial Extension”), and a tax plan that includes more than $4 trillion of deficit reduction proposed by professors Kimberly Clausing and Natasha Sarin (“Clausing-Sarin”). These options highlight the tradeoffs that policymakers will face in 2025.
Key Takeaways
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Full Extension is an extension of each major individual income tax provision otherwise set to expire, estimated to cost nearly $3 trillion over the budget window. Benefits accrue to all income and age groups, with higher-income and older taxpayers benefiting somewhat more. The tax cut is largest for those in the top 10 percent of the income distribution, increasing after-tax incomes by more than 2 percent.
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Partial Extension is an option under which only a subset of expiring provisions is extended, attempting to model a version of extension that is consistent with President Biden’s pledge not to raise taxes on those making less than $400,000. This option would reduce costs from $3 trillion to $2 trillion.
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The Clausing-Sarin option uses the 2025 TCJA expiration as the jumping off point for a tax reform plan that aims to reduce the deficit, increase the progressivity of the tax code, limit existing avenues for tax avoidance, and address global issues like climate change. This option would reduce deficits by more than $4 trillion. Its revenue impacts grow as a share of GDP after the first decade. Lower-income and younger families would benefit on net at the expense of higher-income and older families
