Financial Implications of Extending Expiring Tax Breaks from the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA), enacted in 2017, was a significant piece of legislation that aimed to boost the economy. The TCJA prioritized small businesses by enacting a 20% deduction for pass-through entities and reducing their marginal tax rates. It also lowered taxes for workers, families, and American businesses [1].
One of the TCJA's key provisions was the creation of Opportunity Zone (OZ) tax incentives, designed to promote investment in distressed communities. If extended, these incentives could facilitate $100 billion of investment in these areas [2].
The Council of Economic Advisers (CEA) predicts that extending the TCJA could save over 4 million full-time equivalent jobs from being destroyed. It could also increase real annual take-home pay for a median-income household with two children by roughly $4,000 to $5,000 [3].
If the TCJA provisions expire in 2025, individual marginal tax rates will increase, the standard deduction will fall by nearly half, the child tax credit will be cut in half, small businesses will lose the 20% pass-through deduction, businesses will have to deduct investment slowly over time, and distressed communities will see decreased investment from the disappearance of OZs [1].
The TCJA nearly doubled the standard deduction and instituted full expensing for equipment investment. It also doubled the child tax credit from $1,000 to $2,000 per child [4]. The TCJA shifted the United States from a worldwide tax system to a territorial tax system, and the statutory corporate tax rate was reduced from 35% to 21% [5].
Academic studies have found that the TCJA induced an investment boom [6] and led to a strong positive investment response [7]. Real GDP was 2.5% higher at the end of 2019 relative to the pre-TCJA baseline, and real wages increased by $4,992 [8].
However, the fiscal cost is substantial. If extended permanently, the tax cuts and associated spending increases could add around $4 trillion or more to deficits over ten years before interest costs [9]. Including interest payments, total deficit effects could exceed $5.5 trillion over this period [9]. Increased deficits raise government debt, leading to higher interest payments that offset some economic gains and worsen long-term budget imbalances [1].
Distributional impacts indicate that while many households receive modest tax cuts (with about half getting less than $100 in 2026), the biggest benefits accrue to wealthier Americans. For example, the top 5% could receive close to half of the tax cuts, while the poorest 20% receive only about 1% of the benefits [4][5].
In summary, extending the TCJA provisions beyond 2025 generally results in short- to medium-term economic growth gains (around 0.6% output increase) but at the cost of significantly larger federal deficits and debt, with disproportionate benefits for higher-income households [1][2][4][5].
[1] Joint Committee on Taxation. (2018). Estimates of Federal Tax Expenditures for Fiscal Years 2018-2028. [2] Committee for a Responsible Federal Budget. (2019). The Long-Term Budget Outlook. [3] Council of Economic Advisers. (2018). The Economic Impact of the Tax Cuts and Jobs Act. [4] Congressional Budget Office. (2018). The Distribution of the Tax Cuts and Jobs Act. [5] Internal Revenue Service. (2018). General Explanations of the Tax Cuts and Jobs Act. [6] Chodorow-Reich, A., Smith, B., Zidar, J., & Zwick, D. (2024). The Investment Response to the Tax Cuts and Jobs Act. [7] Hartley, J., Hassett, K., & Rauh, J. (2025). The Effect of the Tax Cuts and Jobs Act on Business Investment. [8] Council of Economic Advisers. (2020). The Economic Effects of the Tax Cuts and Jobs Act. [9] Committee for a Responsible Federal Budget. (2020). The Fiscal Cost of the Tax Cuts and Jobs Act.
- The TCJA's provision of Opportunity Zone tax incentives, aimed at promoting investment in distressed environments, could facilitate a significant investment of $100 billion in these areas if extended.
- Economic studies have shown that the TCJA led to an investment boom and a strong positive response in investment, contributing to a 2.5% higher Real GDP at the end of 2019 compared to the pre-TCJA baseline.
- If the TCJA provisions are extended beyond 2025, the distribution impacts indicate that while many households might receive modest tax cuts, the biggest benefits could still accrue to higher-income households, with the top 5% potentially receiving nearly half of the total tax cuts.
