Is the TCJA Expiration an Opportunity for Change?

What happens when the clock strikes 2025, and the Tax Cuts and Jobs Act (TCJA) of 2017 hits its expiration date for key provisions? If you’re thinking “Uh-oh, tax chaos,” you’re not alone. Congress is gearing up to make some big moves that could shape the financial future of millions of Americans. Back in 2017, the TCJA was kind of a big deal—it overhauled the U.S. tax system, trimmed tax rates, and gave the economy a little extra oomph. Fast forward to now, and its architect, Donald Trump, is back in the White House just as the act’s main provisions are set to sunset. Coincidence? Maybe. A perfect setup for a sequel? Absolutely. 

The administration has expressed interest in securing provisions like the Qualified Business Income Deduction (QBID) and introducing new measures, such as eliminating taxes on tips for hospitality workers.  However, these proposals come with fiscal challenges, as permanently extending certain provisions may increase the national deficit. Additionally, discussions about IRS funding and its role in enforcement and taxpayer services add another dimension to the debate. As the future of U.S. tax policy takes shape, a thoughtful approach that balances economic growth with fiscal sustainability will be essential.

The Picture from the Past

The TCJA introduced sweeping changes that benefitted households and businesses alike. For individuals, it lowered tax rates, nearly doubled the standard deduction, and simplified the process by reducing itemized deductions. Businesses saw a permanent corporate tax rate cut to 21%, alongside temporary perks like 100% bonus depreciation and R&D expensing. Small businesses benefited from a 20% pass-through deduction, while international tax rules were revamped to discourage profit-shifting. 

The results? Lower tax complexity, increased investment, and broad tax relief. But with many provisions temporary by design, the clock is ticking. Congress must now decide whether to continue these benefits, make changes, or go in a different direction. 

All Eyes on 2025

The expiration of the TCJA’s provisions comes with serious consequences. For individuals, reverting to pre-2017 tax rules means higher rates and narrower brackets, which could increase tax burdens and complicate filing. The expanded standard deduction will shrink, and personal exemptions will return, reversing the simplifications many Americans enjoyed.

For businesses, the stakes are equally high. The expiration of 100% bonus depreciation and changes to R&D expensing rules could reduce incentives for investment. Small businesses stand to lose the pass-through deduction, and international corporations could face higher costs as key reforms roll back. Beyond these individual challenges lies a broader issue: the fiscal impact. Extending all TCJA provisions without adjustments could cost over $4 trillion in revenue over the next decade, worsening deficits and the national debt. Balancing economic benefits with fiscal responsibility will be critical.

Where Do We Go From Here?

Keep It Rolling

What if we just extend everything? It would avoid a major tax hike for individuals and businesses. Stability is a key advantage here, allowing taxpayers to continue enjoying lower rates and simpler processes. However, the price tag is hefty—without spending cuts or additional revenue sources, this option would significantly increase the federal deficit and debt-to-GDP ratio. It’s a tradeoff between preserving the current benefits and managing long-term fiscal sustainability.

Pick and Choose

How about a middle ground? Targeted reforms could extend the TCJA’s biggest economic winners while trimming the fat. Think of it as keeping the hits like 100 percent bonus depreciation and R&D expensing for businesses while letting go of the less effective provisions. For individuals, Congress might prioritize extending child tax credits and targeted reliefs while scaling back benefits for higher-income households. Cutting underperforming deductions could even help make the whole package revenue-neutral. This approach aims to keep the economy humming without blowing a hole in Uncle Sam’s wallet. It is all about balancing benefits with fiscal responsibility. Smart, right?

Comprehensive Tax Reform

For a more forward-thinking approach, Congress could consider overhauling the tax system entirely. Shifting from an income-based tax model to a consumption-based one—through measures like a value-added tax (VAT) or a distributed profits tax—could simplify the code and promote long-term growth. While these reforms offer big-picture solutions, they come with significant implementation challenges, including administrative complexity and political hurdles. Comprehensive tax reform is ambitious, but it could provide lasting benefits if executed thoughtfully.

Policymakers should focus on creating a fairer, more transparent tax code that avoids harmful measures like increased taxes on trade or productivity. Comprehensive reform toward a consumption-based system is ideal, but incremental steps like broadening the tax base can also ensure stability. The goal should be a resilient tax system that promotes work, savings, and investment while securing fiscal health.

What Should Lawmakers Keep in Mind?

As lawmakers debate the path forward, several guiding principles should steer the discussion:

• Fiscal Responsibility: Rising deficits and national debt demand a cautious approach. Any reforms should balance economic incentives with sustainable fiscal policies.
• Fairness and Simplicity: Tax policy should prioritize equity across income groups while minimizing compliance burdens for individuals and businesses. 
• Certainty for Growth: Businesses and households need predictability to plan for the future. Permanent or long-term reforms provide the stability necessary for sustained investment and growth. 
• Avoiding Harmful Trade-Offs: Measures that increase taxes on productivity, trade, or investment could undo much of the progress made under the TCJA. Policymakers should avoid such counterproductive steps.

Turning Expiration into Opportunity

The expiration of the TCJA’s provisions is more than a challenge; it is a chance to refine U.S. tax policy. Congress can build on its successes, fix its flaws, and create a system that rewards work, encourages savings, and drives investment while protecting fiscal health. By focusing on fairness, simplicity, and sustainability, lawmakers can shape a tax code that fuels growth without overburdening future generations. The 2025 decisions will define the next chapter of U.S. tax policy, making thoughtful action essential. Stay tuned for more such updates, and don’t forget to subscribe to our weekly newsletter!