Lawmakers in Washington are currently embroiled in a heated debate over the future of the Tax Cuts and Jobs Act (TCJA), a landmark piece of legislation enacted in 2017 during President Donald Trump's first term. The discussion centers on whether to extend the tax cuts beyond their current expiration date in 2025. Proponents argue that extending these cuts would provide significant financial relief to working-class Americans, while critics contend that the benefits disproportionately favor the wealthy.
The TCJA was designed to provide broad financial benefits across the income spectrum. According to a recent analysis by the Tax Foundation, the top 1% of earners, who paid 40% of all U.S. income taxes in 2022, stand to gain significantly from the extension. Meanwhile, the bottom 90% of earners contributed about 28% to the total income tax pool. A White House spokesperson noted that the TCJA cut taxes more for working families than for rich families on a proportional basis.
Experts have provided varying interpretations of the data surrounding the TCJA's impact. A report from the U.S. Treasury Department indicates that extending the Trump tax law would result in an average tax cut of 2.2% for individuals. The Tax Policy Center projects that the top 1% of households, earning around $1 million or more annually, could see a 3.2% boost in after-tax income by 2027 if the law is extended. Factoring in broader economic impacts, income could rise by 3.4%.
From 2017 to 2018, following the enactment of the Trump tax cuts, the bottom 50% of Americans experienced a significant decrease in their average federal tax rate, falling by 15%, according to the Tax Foundation. With TCJA provisions set to expire after 2025, Congress faces a decision on whether to maintain these benefits. The GOP could potentially extend the TCJA with a simple majority vote using budget reconciliation.
An analysis by Wharton suggests that the bottom 80% of income earners would receive 29% of the total value of proposed tax cuts in 2026 if the TCJA is extended. In contrast, the top 10% would receive 56% of the benefits, according to the Tax Foundation. Should Congress choose to extend these provisions, an estimated 62% of tax filers would see reduced tax bills in 2026 compared to if the measures expire.
The TCJA has successfully lowered taxes for most U.S. households, according to experts. However, discussions remain contentious regarding who truly benefits from these cuts.
"If you ask, 'Who gets the dollars,' it's mostly rich taxpayers," said Hines of the University of Michigan.
"Democrats say most of the tax dollars went to the rich: They're absolutely correct," added Hines.
"Republicans say, 'But the cuts were not slanted to the rich compared to how much people were paying originally," Hines continued.
Garrett Watson, director of policy analysis at the Tax Foundation, highlighted the complexity of the debate.
"The reason why the debate is so fractured is there are elements of truth to both sides," said Watson.
Representative Jason Smith, R-Missouri, chairman of the Ways and Means Committee, argued that extending these tax cuts would deliver unprecedented relief to working-class Americans and small businesses.
"Extending the Trump tax cuts delivers the biggest relief to working-class Americans and small businesses in a generation," Smith asserted.
Watson further explained that differing perspectives on how to measure and interpret these tax benefits contribute to the ongoing discourse.
"It's a battle of metrics, and what weight to place on each of them," Watson concluded.