The Expiration of the 2017 Tax Cuts and Jobs Act (TCJA): What It Means for the Working and Middle Class

What Was the TCJA?

The TCJA was a comprehensive tax reform law that aimed to simplify the tax system and provide relief to taxpayers. Here’s a brief overview of its key provisions:

• Reduced Tax Rates: The TCJA lowered individual tax rates across the board.

• Increased Standard Deduction: The law nearly doubled the standard deduction, reducing the need for many taxpayers to itemize deductions.

• Limited Deductions: Major itemized deductions, such as those for state and local taxes (SALT) and mortgage interest, were capped.

• Expanded Child Tax Credit: The TCJA increased the child tax credit amount and expanded eligibility.

• Pass-Through Deduction: A 20% deduction was introduced for pass-through business income.

• Estate Tax Relief: The exemption for estate taxes was significantly increased.

Why Is the TCJA Expiring?

The TCJA's individual tax cuts are set to expire after 2025 due to budgetary and political constraints. The legislation was passed using a process that limited its provisions to a 10-year budget window, with the aim of reducing the long-term deficit impact. This means that many of the tax cuts will end unless Congress acts to extend or make them permanent.

How Does This Affect the Working and Middle Class?

The expiration of the TCJA could have significant effects on the working and middle class. Here’s what you need to know:

• Potential Tax Increases: If the TCJA provisions expire, about 62% of taxpayers could see their tax bills increase. This is because the lower tax rates and expanded deductions provided by the TCJA will no longer apply.

• Reduced Refunds: Many taxpayers who benefited from the TCJA’s expanded standard deduction might face reduced refunds, as they may no longer be able to claim certain deductions they previously could.

• Economic Impact: The expiration could also impact economic behavior. Higher taxes might reduce disposable income and affect spending.

Pros and Cons of the TCJA Expiring

Pros:

1. Reduced Deficit Impact: The expiration of these tax cuts could help reduce the federal deficit, addressing long-term fiscal concerns.

2. Potential for New Reforms: The expiration might pave the way for new tax reforms that could address current economic conditions or fiscal needs.

Cons:

1. Increased Tax Burden: Many taxpayers could face higher taxes, which might reduce their disposable income and affect their financial well-being.

2. Loss of Benefits: The expiration means losing the benefits of lower tax rates, expanded deductions, and increased credits that many working and middle-class families have come to rely on.

3. Economic Uncertainty: The uncertainty surrounding potential new tax laws and their implementation could create confusion and financial planning challenges.

Conclusion

The expiration of the TCJA is a significant event that could impact millions of taxpayers, particularly the working and middle class. As we approach the deadline, it’s essential to stay informed and plan accordingly. Whether it’s adjusting your tax strategies or preparing for potential changes in your financial situation, being proactive can help mitigate the impact of these upcoming changes.