Key Points While the 2017 Tax Cuts and Jobs Act (TCJA) reformed the tax code to encourage growth and ease the tax burden on individuals and businesses, many of its provisions were temporary, with various tax increases and phaseouts beginning in 2022 and the expiration of individual income tax changes in 2025. As lawmakers debate the future of the TCJA, they should consider building on the pro-growth reforms they started while tailoring the legislation to minimize its impact on the deficit. This report presents two options to extend the TCJA that promote economic growth, slightly increase the progressivity of the federal tax code, and are fiscally sound. Read the PDF. Executive Summary The 2017 Tax Cuts and Jobs Act (TCJA) contained reforms geared toward increasing economic growth and making the tax code simpler, more efficient, competitive, and neutral. However, many key provisions were temporary, and some provisions were not ideal. Instead of simply extending the TCJA, lawmakers should make further pro-growth and fiscally responsible reforms while improving the tax code’s stability and neutrality. This report proposes two options to extend the TCJA. The first option extends most features of the TCJA’s individual and business provisions while making incremental reforms to the tax code. It would improve on the TCJA by reducing the cost of capital and mitigating distortions and complexities while maintaining revenue neutrality. The second option is more aggressive and builds on the structure of the TCJA by enacting significant pro-growth reforms. It would reduce tax rates for individuals, broaden the tax base, and replace business taxation with a tax on business cash flow. The report estimates the impact of each option on federal revenues, the distribution of the tax burden, incentives, and long-run economic output. Introduction In 2017, Republican lawmakers passed the Tax Cuts and Jobs Act (TCJA). This law made significant reforms to improve the structure of individual and corporate income taxes while delivering sizable tax cuts for individuals and businesses. The law’s primary goal was to increase economic growth by making the tax code more internationally competitive and economically efficient. Unfortunately, a large portion of the TCJA was temporary. Some important business tax provisions are phasing out, have gone into force, or will ratchet up in 2026. Meanwhile, most individual income tax reforms are scheduled to expire at the end of 2025. Over the next year and a half, lawmakers will debate whether and how to extend the TCJA either in part or in whole. Simply extending the law, however, would not only be a missed opportunity to make further pro-growth reforms but also add too much to the national debt at a time of growing fiscal challenges. In 2023, the federal government ran a budget deficit equal to 7.5 percent of gross domestic product (GDP), which is unprecedented given that the economy was not in recession. Similarly large and persistent deficits are on the horizon. At the same time, the cost of borrowing is rising—and rising faster than expected. The nation’s fiscal policy, including tax policy, should reflect these realities. We estimate that fully extending the TCJA would reduce revenues by $404.7 billion in 2026 and $3.8 trillion over the 10-year budget window (2026–35). That revenue loss would require an additional $700 billion in debt service costs. Lawmakers should look for ways to make the key accomplishments of TCJA permanent while also making the law more fiscally sustainable. This report puts forth two options to extend the TCJA that either are revenue neutral or otherwise minimize the deficit impact in the short run while achieving revenue neutrality after about 10 years. The goal of both options is to build on the improvements made by the TCJA: reduced marginal tax rates on work, saving, and investment; reduced complexity; a broader tax base; and fewer tax-induced economic distortions. Option 1 makes incremental improvements to the TCJA while maintaining revenue neutrality. The incremental nature of the reforms is intended to make Option 1 more politically viable. Option 2 is a more aggressive reform emphasizing economic growth. Both options marginally increase the progressivity of the federal tax code. Read the full report.
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