Key Points
Most of the cost of extending the TCJA comes from reduced revenues, which decrease by $4.0 trillion ($4,011 billion) over the 2025-2034 period. About $3.4 trillion ($3,388 billion) of revenue loss comes from a reduction in individual tax payments, with $623 billion coming from a reduction in corporate taxes paid.
Including economic feedback effects, revenue falls by $3,834 billion over the 2025 – 2034 period, consistent with economic growth paying for about 4.5 percent of the 10-year loss in revenue. By the year 2054, we project that federal debt would be 16 percent higher than under current law. The reduction in tax distortions is modest because many of the tax gains are infra-marginal to individuals. The increase in debt offsets most of these gains. The capital stock by 2054 increases by 0.4 percent, along with small increases in hours worked and average wages. GDP increases by 0.2 percent in 2054 relative to current law.
The impact of the TCJA extenders for a given taxpayer age is less regressive than indicated by conventional distributional analysis that ignores age. Instead, the TCJA extenders would mostly redistribute resources from future generations to those currently alive. For example, while the policy would produce the equivalent of a one-time lifetime gain of $13,400 for a 20-year-old in the bottom income quintile, the same type of household born 30 years later would be $21,800 worse off, with even larger losses accumulating for future generations.
The Budgetary and Economic Effects of permanently extending the 2017 Tax Cuts and Jobs Acts’ expiring provisions
Several major provisions of the TCJA of 2017 are temporary and will expire (“sunset”) by the end of 2025. Some of the temporary measures began to phase out starting in 2022, while most of the temporary measures will fully expire by the end of 2025.1
When the TCJA was passed in 2017, it changed U.S. individual, corporate, and international taxes. Most of the individual provisions are scheduled to sunset at the end of 2025, though some of them have expired already. Several of the major corporate and international tax provisions were enacted permanently (without sunsets), while others were scheduled to phase out or become less generous over time.
Table 1 shows our estimates of changes to revenues that would result from enacting a permanent extension of certain TCJA provisions over the next decade. Projections for 2025-34 indicate a total reduction in revenues and commensurate increase in federal primary deficits of $4,011 billion, with over 80 percent arising from the continuation of cuts to individual income taxes.
| Tax Provision | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025-2034 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Individual | |||||||||||
| New tax rate and bracket structure | 0 | -276 | -229 | -240 | -248 | -257 | -266 | -276 | -284 | -293 | -2,369 |
| Expand the standard deduction and repeal personal exemptions | 0 | 6 | 46 | 49 | 50 | 51 | 53 | 55 | 57 | 58 | 424 |
| New pass-through business deduction | 0 | -42 | -29 | -30 | -33 | -35 | -37 | -38 | -39 | -40 | -324 |
| Pass-through business loss limits | 0 | 0 | 0 | 0 | 16 | 28 | 29 | 30 | 31 | 33 | 167 |
| Expand Child Tax Credit (CTC) and new non-child dependent credit | 0 | -37 | -85 | -87 | -88 | -92 | -93 | -94 | -97 | -98 | -770 |
| Repeal and modifications to itemized deductions | 0 | 42 | 50 | 52 | 55 | 58 | 61 | 64 | 67 | 70 | 520 |
| Increase Alternative Minimum Tax (AMT) exemption phaseout threshold | 0 | 0 | -97 | -99 | -105 | -109 | -114 | -119 | -124 | -128 | -894 |
| Estate Tax Exemption Doubled | 0 | -4 | -15 | -15 | -16 | -17 | -18 | -19 | -20 | -21 | -143 |
| Subtotal | 0 | -311 | -358 | -371 | -368 | -374 | -385 | -396 | -408 | -419 | -3,388 |
| Corporate | |||||||||||
| Net interest deduction capped at 30% of income | -5 | -7 | -7 | -7 | -7 | -7 | -7 | -8 | -8 | -9 | -71 |
| Changes to the treatment of investment | -37 | -52 | -57 | -50 | -40 | -33 | -28 | -24 | -22 | -20 | -364 |
| Amortize research & experimentation costs | -32 | -36 | -29 | -22 | -14 | -12 | -11 | -11 | -10 | -10 | -188 |
| Subtotal | -74 | -95 | -93 | -78 | -61 | -52 | -47 | -43 | -40 | -39 | -623 |
| Total (reduction (-) or increase (+) in revenues) | -74 | -406 | -452 | -449 | -429 | -426 | -431 | -439 | -448 | -458 | -4,011 |
| Memorandum: | |||||||||||
| Total reduction in revenues, with dynamic effects | -55 | -391 | -434 | -433 | -417 | -413 | -415 | -418 | -426 | -432 | -3,834 |
Note: Effects on federal outlays include tax refunds and the repeal of the individual mandate for health insurance.
For individuals, extending the TCJA will keep seven ordinary tax brackets with TCJA thresholds and rates. The top rate will be kept at 37 percent (versus 39.6% pre TCJA) and the exemption and exemption phaseout threshold from the Alternative Minimum Tax (AMT) will remain elevated. The standard deduction will remain roughly twice as high as before the TCJA and personal exemptions will remain eliminated. For households who itemize deductions, the cap on the Mortgage Interest Deduction will remain at $750,000 in mortgage debt and up to $10,000 of State and Local taxes can be deducted. The Child Tax Credit will remain at $2,000, the amount refundable at $1,400 (in 2017 dollars) and begin to phase out at $400,000 of income. The Other Dependent Credit, which provides a $500 nonrefundable credit for dependents that do not qualify for the CTC, will remain in effect. Married filers will be able to deduct 20 percent of the first $315,000 ($157,500 for other filers, all in 2017 dollars) in income from pass-through businesses, subject to limitations. The individual mandate for health insurance will remain repealed and estate tax exemptions will remain at their higher post TCJA levels. We assume that all these provisions will be permanent.
For corporations, extending the TCJA will make permanent the 100 percent bonus depreciation deduction that was available for the first five years after TCJA's enactment but began phasing out in 2023. It would also restore businesses' ability to immediately deduct all research and experimentation costs, instead of amortizing them over five years. Finally, it would permanently limit deductions for net interest expense to 30 percent of income before interest, taxes, depreciation, and amortization, as opposed to the less generous current limit based on income before interest and taxes.
Consistent with the conventional budget scoring tradition, the primary deficits reported in Table 1 do not include the impact from economic growth that could change the size of the tax bases. For additional information, the Memorandum to Table 1 reports the effects on the primary deficits from economic growth. The largest economic impact occurs quickly, with the TCJA increasing the primary federal deficit by $55 billion in 2025 compared to $74 billion under the conventional score. Over the 2025 – 2034 period, economic growth pays for about 4.4 percent of the new primary deficits, which total $3,834 billion instead of $4,011 billion.
Table 2 shows that extending the TCJA increases debt with only a modest increase in GDP by 2054, equal to 0.2 percent. The capital stock and hours worked also see modest gains.
| 2034 | 2039 | 2044 | 2049 | 2054 | |
|---|---|---|---|---|---|
| Gross domestic product | 0.3 | 0.3 | 0.3 | 0.3 | 0.2 |
| Capital stock | 0.4 | 0.6 | 0.7 | 0.6 | 0.4 |
| Hours worked | 0.4 | 0.3 | 0.3 | 0.3 | 0.3 |
| Average wage | 0.0 | 0.2 | 0.2 | 0.2 | 0.1 |
| Consumption | 4.1 | 4.4 | 4.6 | 4.6 | 4.4 |
| Debt held by the public | 10.1 | 13.1 | 14.8 | 15.8 | 16.3 |
There are two reasons for the diminutive economic gains. First, most of the tax gains---almost $3.4 trillion of the $4.0 trillion---accrues to individual taxpayers rather than corporations. While individual taxpayers can increase their savings and labor supply in response to a tax reduction, most of the gains are still infra-marginal, which has less impact on these decisions. More of the economic gain per tax dollar saved comes from corporations, which only see a small reduction in their tax payments from TCJA extension. Overall, these reductions in tax distortions are mostly offset by the impact from larger debt accumulation.
Notice that consumption increases by 4 percent by 2034, which adds to inflation pressure. However, the impact of TCJA extenders on inflation would be, at best, modest by 2034.
By 2054, the debt held by the public increases by 16.3 percent, which also includes the effects of larger interest payments.
Table 3 shows that extending the TCJA, on average, increases after-tax income across the income distribution. Low- and middle-income households primarily benefit from expanding the child tax credit and the standard deduction, while middle and income households benefit from lower personal and corporate income taxes. Like JCT, PWBM assigns some of the increase in corporate tax rates as a reduction in wages paid to all households, which is captured Table 3.2
| Income group | 2026 | 2034 | ||
|---|---|---|---|---|
| Average income change, after taxes and transfers | Percent change in income, after taxes and transfers | Average income change, after taxes and transfers | Percent change in income, after taxes and transfers | |
| First quintile | 265 | 1.20% | 420 | 2.50% |
| Second quintile | 600 | 1.30% | 785 | 1.30% |
| Middle quintile | 1,115 | 1.40% | 1,425 | 1.40% |
| Fourth quintile | 2,870 | 2.00% | 3,530 | 2.00% |
| 80-90% | 4,760 | 2.20% | 5,015 | 1.90% |
| 90-95% | 7,305 | 2.20% | 8,775 | 2.10% |
| 95-99% | 19,210 | 3.30% | 21,000 | 2.90% |
| 99-99.9% | 41,345 | 2.30% | 38,390 | 1.70% |
| Top 0.1% | 330,475 | 2.40% | 100,965 | 1.00% |
In 2026, average income after taxes and transfers increases the least for households in the bottom 80 percent of the income distribution, both in total and as a percentage of their income. Those increases range from $265 for households in the bottom income quintile to $2,870 for households in the fourth quintile. Those numbers mean that households in the lowest quintile increase their income by 1.2 percent, while those in the fourth quintile increase their households by 2.0 percent. Households in the top income quintile increase their income by more than households in the bottom quintile, both in total and as a percent of their income.
In 2034, the results look very similar, although the increase in income of the top 1 percent is slightly smaller compared to 2026 and the relative income of households in the bottom quintile more than doubled to 2.5 percent.
Table 4 shows PWBM’s dynamic distributional analysis using its dynamic model for the proposal. Dynamic distributional analysis considers households across the income and age distribution, including the unborn represented by a negative age index at the time of the reform. It asks how much each household, categorized by income and age, values the proposed policy change over their entire lifetime, represented as a one-time transfer at the time of the policy change.3 A positive value in Table 4 means that the household would be better off under the policy reform by the amount shown; a negative value means that the household would be worse off under the policy reform. Dynamic distributional analysis is the standard in academic research, where conventional analysis is rarely used due to several key limitations that dynamic analysis addresses.
Table 4 shows that the TCJA increases the lifetime wellbeing of most currently alive households; the notable exception is for some households close to retirement that lose some value of their accumulated assets due to a reduction in forward-looking returns. Generally, high-income households gain more from this policy than do low- and middle-income households. For example, households how enter the economy at age 20 benefit about $13,400 if they are in the bottom income quintile, but by $103,300 if they are top decile income earners.
However, future generations generally fair the worst and are worse off than under current law. For example, households aged -20 at the time of the policy change (i.e. households born 30 years after the policy change) and in the bottom income quintile are $33,800 worse off and households in the top income quintile are $18,800 worse off.
The main driver of this result is that dynamic analysis, unlike conventional analysis, recognizes that current law is not sustainable over time in the presence of forward-looking capital market participants. To “close” the dynamic model, PWBM assumes a “closure rule” taking the form of a tax on consumption not including medical insurance premiums or medical expenses.4 As a result, future generations lose from an increase in this consumption tax required with higher debt. These gains represent a one-time loss of about one to four months of income for most households born in the future, when accounting for economic growth over time.5
This analysis was conducted by Alex Arnon, Kody Carmody, Jon Huntley, Ed Murphy, Brendan Novak, and Felix Reichling under the direction of Kent Smetters. Felix Reichling wrote this brief with guidance from Kent Smetters. Mariko Paulson prepared the brief for the website.
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Several provisions related to business investment - such as 100 percent bonus depreciation and more generous deductibility of interest expense - began their phase-outs in 2022. Some provisions will adjust more rapidly in 2025, including the higher estate-and-gift tax exclusion limit, which will revert to the 2018 value ($5.5 million) after 2025. Several additional TCJA provisions for individuals and businesses – such as individual income tax rates, the increased child tax credit, increased alternative minimum tax threshold, increased standard deduction limits on state and local tax deduction, mortgage interest deduction, qualified business income deduction, etc. -- are also set to expire after 2025. ↩
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In the presence of adjustment costs, PWBM estimates a wage incidence that varies from 0 percent in 2025 and increases to 25 percent by year 2034. Wage incidence adjustments are naturally ad hoc in nature for new policy but follow a past empirical literature (which is not always a good guide for new policy) and a practice by JCT. ↩
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For the unborn, the transfer is calculated to be received at their first year of working age, not in present value. ↩
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Importantly, a closure rule is not part of current law and itself reflects the lack of sustainability of current law. ↩
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Table 4 sorts households by their income group immediately prior to the policy change. However, in the presence of lifecycle (age) effects, households move between income groups over their lifetime, typically increasing with age followed by decreasing with age (especially in retirement). Household income also varies based on direct income shocks and medical cost shocks that impact future ability to earn income. ↩
age 0 to 20 20 to 40 40 to 60 60 to 80 80 to 100 -20 -33800 -32700 -40900 -25300 -18800 -10 -21800 -12600 -9600 -6100 -2100 0 -6000 2100 8900 23000 51400 10 6200 16700 31000 53500 91100 20 13400 23400 41100 65800 103300 30 14700 15300 19700 30100 47500 40 5700 3000 -900 -4300 -21200 50 -2000 -10100 -13600 -33600 -84900 60 -5300 -11000 -17300 -16800 -15900 70 1600 3700 14300 36800 133400 80 1900 3000 7600 24000 97900