Republicans, with President-elect Donald Trump and a GOP majority, aim to renew expiring tax cuts worth USD 4 trillion. The US Treasury recently analysed the impact of extending Trump’s 2017 Tax Cuts and Jobs Act (TCJA). This analysis reveals potential costs and beneficiaries of making these tax provisions permanent.

The Treasury’s Office of Tax Analysis estimates that the top 0.1% of earners could receive a tax cut of USD 314,000 if individual and estate tax provisions are fully extended. This would cost USD 4.2 trillion from 2026 to 2035. However, if the extensions only apply to families earning USD 400,000 or less annually, the cost would drop to USD 1.8 trillion.

Impact on Federal Debt

A Treasury official stated that this analysis provides Congress with options for addressing the federal debt, which exceeds USD 36 trillion. The TCJA represents a significant domestic achievement from Trump’s first term and may influence his potential return to the White House.

Trump supports extending all expiring provisions, while Republicans aim to reduce federal spending. Balancing these goals will complicate congressional negotiations on funding the tax extensions.

Proposals for Middle-Class Americans

On the campaign trail for 2024, Trump introduced proposals targeting working- and middle-class Americans. These include exempting earned tips, Social Security wages, and overtime wages from income taxes.

Lawmakers are also considering temporarily doubling a USD 10,000 cap on state and local tax deductions for most married couples. The Committee for a Responsible Federal Budget estimates this could reduce revenues by USD 170 billion.

Republican Tax Policy Goals

Republicans have pledged to reverse energy tax credits from Biden’s Inflation Reduction Act and income tax increases on wealthy Americans. Most changes to the individual tax code under the TCJA are temporary and set to expire by the end of 2025.

The Urban-Brookings Tax Policy Centre reported in July that households earning around USD 450,000 or more would gain over 45% of benefits from extending key provisions of the 2017 act. The Penn Wharton Budget model predicts that permanently extending the TCJA could increase deficits by USD 4 trillion over ten years.

Economic Growth Debate

Republicans argue that tax cuts stimulate economic growth by encouraging additional economic activity. “Many of the provisions of the TCJA were designed to foster greater economic growth,” stated Neil Bradley and Watson McLeish from the US Chamber of Commerce in an August report.

The debate over extending these tax cuts continues as lawmakers weigh their potential impact on both economic growth and federal debt levels.