Published
May 20, 2024
It may seem hard to believe, but it has been nearly seven years since the historic Tax Cuts and Jobs Act (TCJA) was signed into law. Heralded as the most comprehensive tax reform legislation to be enacted since 1986, the TCJA achieved a substantial modernization of the United States’ approach to taxing business income, particularly with respect to cross-border transactions.
And yet, many of the TCJA’s individual, business, and estate tax reforms were enacted on a temporary basis and are scheduled to expire at the end of 2025.
What’s Happening Now: Earlier this year, the Chamber’s advocacy helped secure bipartisan House passage of legislation to restore and extend three critical TCJA business tax reforms that have already expired or begun to phase down:
- The deduction for domestic research (R&D) expenses;
- The EBITDA standard for deducting business interest expenses; and
- 100% bonus depreciation.
As the Senate continues to deliberate on this legislation, America’s employers and workers are paying the price. Small and midsize business owners have been especially hard hit, with some forced to take out high-interest loans, raise prices, pare back operations, and even cut jobs just to survive and pay their taxes.
What Lies Ahead: Absent congressional action, the end of 2025 will witness the expiration of many more TCJA provisions with serious, adverse impacts to both individuals and businesses of all sizes. And these impacts would be compounded by the simultaneous expiration of a dozen other temporary tax provisions, including the expanded premium tax credits for individuals purchasing health insurance, the new markets tax credit, and the work opportunity tax credit, among others.
Some of the major expiring tax provisions that Congress will have to address in 2025 include:
- Provisions governing the tax treatment of certain business expenses and investment costs, with a total cost of approximately $409 billion over ten years;
- The 20% deduction for qualifying pass-through business income, with a cost of approximately $662 billion over ten years;
- Provisions to maintain a competitive international tax code, including those affecting the base erosion and anti-abuse tax (BEAT), foreign-derived intangible income (FDII), and global intangible low-taxed income (GILTI), with a total cost of approximately $141 billion over ten years;
- Estate and gift tax (death tax) relief, with a total cost of approximately $167 billion over ten years;
- Lower individual income tax rates, the higher standard deduction, the expanded child credit, and the higher alternative minimum tax phaseout thresholds, partially offset by limits on itemized deductions and the repeal of the personal exemption, with a total net cost of approximately $2.6 trillion over ten years; and
- Expanded health insurance premium tax credits, with a total cost of approximately $335 billion over ten years.
Given the sheer magnitude of the approaching fiscal cliff, however, taxpayers should prepare for everything to be on the table next year—including otherwise “permanent” provisions like the TCJA’s 21% corporate income tax rate or the Inflation Reduction Act’s energy tax credits. Of note in this regard, the Biden administration’s budget for Fiscal Year 2025 includes a proposal to raise the corporate income tax rate from 21% to 28%.
By the Numbers: According to the Congressional Budget Office, the net budgetary cost of permanently extending all the expiring individual, business, and estate tax provisions is approximately $4.5 trillion, exclusive of any associated debt-service costs or savings.
Of this amount, the TCJA’s expiring individual income tax provisions would account for nearly $2.6 trillion and represent, by far, the largest slice of the 2025 pie. By comparison, the net budgetary cost of extending most of the expiring business, pass-through, and international tax provisions would amount to over $1.2 trillion.
With the stakes so high going into next year, robust education and messaging campaigns will be crucial given the increasing number of lawmakers in both parties with neither a voting history nor any institutional knowledge of the 2017 tax reform process. By the start of the next Congress, nearly 60% of House members and 20% of Senators will not have been in Congress when the TCJA was enacted.
Our Approach: The Chamber is already pounding the marble on Capitol Hill to educate members of Congress and congressional staff about the looming 2025 fiscal cliff. And as we prepare for all possible outcomes of the upcoming election, the Chamber is organizing a broad-based coalition across the business community to advance comprehensive, consensus-based solutions for a pro-growth and globally competitive U.S. business tax system that preserves our tax base.
