The 2017 Tax Cuts and Jobs Act (“TCJA”) remains one of the most defining legislative achievements of President Trump’s administration, fundamentally reshaping the tax landscape in the United States. By slashing corporate tax rates from 35% to 21% and altering individual income tax brackets, the TCJA aimed to stimulate economic growth and bolster corporate investment.[1] However, while the TCJA succeeded in boosting corporate profits and stock buybacks, its impact on long-term economic growth and wage increases has been debated, making its impending expiration a critical issue for policymakers assessing whether to extend key provisions.[2] The provisions of the TCJA are set to expire at the end of 2025, creating an urgent fiscal challenge that policymakers must address.[3] Extending these tax cuts is estimated to add approximately $4.6 trillion to the federal deficit over the next decade.[4]
From its inception, critics have highlighted the unsustainability of the TCJA’s fiscal framework. While proponents argued that the tax cuts would “pay for themselves” by stimulating economic growth and increasing government revenues, research shows that many corporations leveraged the reduced tax rates to avoid taxes altogether, rather than reinvesting in the economy.[5] By 2023, the TCJA had contributed approximately $1.9 trillion to the national debt.[6] Given that the U.S. has been running a deficit every year since 2001, extending the tax cuts without a robust funding mechanism would exacerbate this trend.[7]
Fiscal Impact of the TCJA
The TCJA was projected to raise $4 trillion in tax revenues while extending $5.5 trillion in tax breaks, resulting in a $1.5 trillion deficit over a ten-year period.[8] Republican lawmakers emphasized the self-financing potential of the act, estimating that it could offset $1.8 trillion through economic growth.[9] In the short term, the TCJA’s tax reforms boosted consumer spending and business production through individual tax rate cuts and capital investment incentives.
Despite these intentions, the national deficit has continued to grow.[10] The COVID-19 pandemic amplified this issue, with emergency stimulus packages and decreased tax revenues contributing to a significant increase in the deficit. Although spending levels have normalized, the deficit remains elevated compared to pre-pandemic levels. Extending the TCJA without corresponding spending cuts or new revenue streams could further magnify this fiscal imbalance.[11]
Proposed Funding Strategies
To fund the extension of the Tax Cuts and Jobs Act (TCJA), Republican lawmakers have proposed several measures aimed at reducing federal expenditures.[13]
- Reducing Medicaid Funding: One prominent proposal involves cutting Medicaid benefits, particularly by restricting access for non-U.S. citizens. This measure could potentially result in approximately 600,000 low-income individuals losing healthcare coverage.
- Repealing Health-Related Tax Credits: This measure is specifically directed at the tax credits introduced during the Biden administration to reduce healthcare costs. Eliminating these credits could lead to higher out-of-pocket expenses for many Americans.
- Taxing Educational Financial Aid: Proposals suggest making college scholarships and fellowships fully taxable, which would increase the tax burden on students and potentially discourage higher education pursuits.
- Rolling Back Climate Change Initiatives: Reducing or eliminating funding for programs aimed at combating climate change is another strategy under consideration. While this could yield short-term savings, it may have long-term environmental and economic consequences.
- Increasing Taxes on Specific Employee Benefits: For instance, lawmakers are considering imposing taxes on workplace gym memberships to generate additional revenue.
However, these proposed funding strategies may not be feasible in light of other significantly costly spending plans in consideration. For instance, the Trump administration’s proposal for mass deportations of undocumented immigrants would require substantial funding, potentially offsetting any savings achieved through the proposed cuts.[14] Additionally, these proposals are likely to face strong opposition from Democrats, who may block efforts to implement cuts to social programs and tax credits that benefit low- and middle-income Americans.[15] Given the slim Republican majority in Congress, achieving consensus on these measures may prove challenging.
Implications for the General Public
Extending the TCJA without sustainable funding mechanisms could have several implications for the general public. First, the projected $4.6 trillion addition to the national deficit over the next decade could significantly increase borrowing costs for the federal government. Higher interest payments on the debt would reduce available funds for critical public investments in infrastructure, education, and healthcare.[16] This scenario would likely place additional pressure on state and local governments to bridge the gap, potentially resulting in higher taxes or reduced services.
Second, the proposed funding strategies could disproportionately impact vulnerable populations. Reducing Medicaid benefits and taxing educational financial aid, for example, could intensify existing inequalities by limiting access to healthcare and higher education for low-income families.[17] These measures risk deepening economic disparities and undermining public trust in government institutions.
Finally, maintaining the tax cuts without addressing the resulting deficit could destabilize the broader economy. An unchecked increase in the national debt may lead to higher interest rates, making borrowing more expensive for businesses and consumers alike. This dynamic could stifle economic growth and reduce the United States’ fiscal flexibility to respond to future crises.[18]
Conclusion
As the 2025 expiration date of the TCJA approaches, the debate over its extension underscores the tension between fiscal policy and economic equity. While extending the TCJA is a priority for the current administration, the proposed strategies to fund it involve significant trade-offs that could have far-reaching effects on the economy and various segments of the population. The TCJA’s viability is further complicated by political opposition and competing spending priorities, such as mass deportation initiatives. A more balanced approach, considering both spending cuts and revenue enhancements, may be necessary to promote fiscal sustainability while ensuring social equity and economic growth. Ultimately, careful consideration of these implications is crucial to crafting a responsible and equitable fiscal policy.
[1] Adam Lowenstein, Trump gave top US firms staggering tax cuts, with some paying $0 or less, The Guardian, (Feb. 29, 2024, 6:00 AM), https://www.theguardian.com/business/2024/feb/29/trump-tax-cuts-us-companies.
[2] Chris Matthews, Trump promised his tax cuts would boost wages by $4,000 — but most workers saw few gains, study finds, MarketWatch, (Sept. 12, 2024, 2:50 PM), https://www.marketwatch.com/story/trump-promised-his-tax-cuts-would-boost-wages-by-4-000-but-most-workers-saw-few-gains-study-finds-f778dec3
[3] Id.
[4] CBO, The Budget and Economic Outlook: 2023 to 2033 (Feb. 2023), https://www.cbo.gov/publication/58946.
[5] Matthew Gardner et al., Corporate Tax Avoidance in the First Five Years of the Trump Tax Law, ITEP, (Feb. 29, 2024), https://itep.org/corporate-tax-avoidance-trump-tax-law/.
[6] See CBO, supra note 3.
[7] Id.
[8] Sanam Rasool et al., Revenue Implications of Tax Cut and Jobs Act Provisions in 2025, CSIS, (Dec. 19, 2024), https://www.csis.org/analysis/revenue-implications-tax-cut-and-jobs-act-provisions-2025.
[9] Id.
[10] CBO, The Budget and Economic Outlook: 2023 to 2033 (Feb. 2023), https://www.cbo.gov/publication/58946.
[11] Christopher Wood, Experts Discuss Tax Reform Landscape in 2025, Thomson Reuters, (Dec. 24, 2024), https://tax.thomsonreuters.com/blog/experts-discuss-tax-reform-landscape-in-2025.
[12] See CBO, supra note 9.
[13] Adam Gabbatt, Republicans reportedly ready to cut Medicaid funding to pay for Trump plans, The Guardian, (Jan. 23, 2025), https://www.theguardian.com/us-news/2025/jan/23/republicans-medicaid-funding-trump.
[14] Ed Kilgore, Trump Needs Huge Safety-Net Cuts to Pay for His Agenda, Intelligencer, (Jan 24, 2025), https://nymag.com/intelligencer/article/trump-needs-huge-safety-net-cuts-to-pay-for-his-agenda.html.
[15] Id.
[16] Peter G. Peterson Foundation, The Next Fiscal Cliff: Big Tax Decisions to Make in 2025, (Dec. 20, 2024) [hereinafter PGPF], https://www.pgpf.org/article/the-next-fiscal-cliff-big-tax-decisions-to-make-in-2025.
[17] See Gabbatt, supra note 12.
[18] See PGPF, supra note 15.
