2 Pros and 2 Cons of Trump’s Tax Cuts and Jobs Act

Tax policy will be high on the list of priorities for the incoming Trump administration, especially with the president-elect’s Tax Cuts and Jobs Act set to expire in December. (Peterson Foundation)

Two pros of the TCJA:

• A study of 12,000 corporate tax returns showed that firms impacted by the TCJA increased domestic investment by about 20% in the two years following the reform.

• The TCJA made filing taxes simpler by nearly doubling the standard deduction, allowing more people to skip itemizing deductions, and by reducing the number of people subject to the Alternative Minimum Tax, a complex process intended to ensure high earners pay a minimum tax amount.

Two cons:

• The TCJA is projected to increase the deficit by $1.6 trillion over 10 years (from 2018 to 2027).

• Extending the TCJA’s expiring provisions could add $4.0 trillion to the deficit from 2025 to 2034 (excluding interest costs).

Wonky, but important context: As Cato notes, the goal of tax cuts is for the growth stemming from them to remain permanent: “If we accept the premise that some tax cuts result in a permanently larger economy, there is some subset of reforms that will result in a revenue break-even point … estimates imply the accumulated deficits from 2018–2023 ($1.4 trillion) will be fully offset by annual surpluses in 2028. This is due to the combined effect of economic growth and many temporary provisions that expire between 2022 and 2026. Assuming the law is made permanent, the break-even point is pushed back to roughly 2027, and the law pays for itself by 2033. Beyond 2033, the TCJA could be deficit-reducing.”