For example, the Tax Cuts and Jobs Act passed in 2017. It continues to be a lightning rod for debate over its effect on the U.S. economy. The U.S. Senate moved the legislation forward with just 51-49 votes. It lowered individual income tax rates, expanded child tax credits, and offered businesses a high-dollar expedited immediate expensing of investments. While several analysts see these changes in a positive light, others are sounding the alarm on what these changes could mean for the future of the bill.
Other experts are warning that there may be unexpected consequences to the legislation. Erica York, the vice president of federal tax policy at Tax Foundation’s Center for Federal Tax Policy, raised alarms. According to her, that is “fiscally irresponsible,” as it radically increases annual budget deficits and debt – even after accounting for growth. She noted that most of these tax cuts are complex and ill-designed. Despite this, specific categories of workers have fallen through the cracks and missed relief meant for them.
Most provisions of the Tax Cuts and Jobs Act sunset at the end of 2025. Policy and economic analysts have begun speculating about what the new economic landscape will look like as that deadline looms nearer. David Seif, chief economist for developed markets at Nomura, recently sounded the alarm. He forecasts a worst-case scenario of major tax increases next year when these provisions sunset. He wrote, “To my mind the OBBB would almost certainly be a boon to the US economy over the next several years. … Much better than nothing would be terrible.”
Seif further emphasized the importance of renewal for expired tax provisions: “The most important thing OBBB does for the next few years is renew most of those expiring tax provisions, preventing a major and sudden fiscal contraction from occurring.” As his predictions indicate, those short-term benefits will quickly diminish, leaving communities to face the consequences of the act’s passage when its positive impacts fade.
The American Bankers Association is on record as strongly supporting many, many provisions of the Tax Cuts and Jobs Act. In their joint rebuttal, they stress that these provisions provide sorely needed tax relief. Economists at Citi recently pointed to even rosier prospects. They are convinced that after the passing of the act, growth sentiment will be favorable in the short term. They suggested that trade deals with various countries, alongside the net stimulatory effects of tax reform, could bolster economic confidence.
Despite this optimism, concerns remain as to whether this economic growth spurred by the addition of dedicated funding for transit is sustainable. These new provisions can help speed up short-term investments, especially when it comes to building physical capital. This short-term increase could have a negative impact on future investment.