A Message to President-Elect Donald Trump & Congress: Extending Key TCJA Provisions Should be a Day-One Priority

Building a strong economy appears to be a top priority as President-elect Donald Trump prepares for a second term. Extending the expiring tax cuts should be job one for Trump and the new Congress. Despite its success in lowering the tax burden both in terms of monetary value and time value for individuals and businesses, most of the Tax Cuts and Jobs Act (TCJA) reforms have either expired or are slated to expire soon.

The key to the success of the TCJA was its mix of making a simpler and flatter tax code for individuals and the introduction of investment-inducing incentives for businesses. Studies showed that around 80 percent of all filers saw a lower tax liability than they otherwise would have had the TCJA not been enacted. The TCJA also reduced the tax compliance burden by about 2 billion hours 3 years after it passed, allowing businesses to use that time and money for more productive uses than preparing and filing taxes. And, of course, nobody can forget the bonuses that were given out by corporations.

America is facing increasing economic pressure from foreign adversaries that could erode its position as global economic leader. The tax code needs to support, rather than hamper, the ability of the U.S. economy to outcompete these foreign competitors. Unfortunately, the Biden Administration’s approach to corporate taxation did precisely the opposite. Not only are most of the investment-inducing provisions of the TCJA on track to expire, the U.S.’s effective corporate tax rate is higher that its peer economies—such as other Organization for Economic Cooperation and Development (OECD) countries. Instead of addressing this flaw, the 2025 budget brought forward by the Biden administration would increase that rate up to 28 percent. It would also establish a minimum effective tax rate of 21 percent for companies valued at $1 billion or more, amongst other rate increases on both stock buybacks and payroll taxes.

Increasing the corporate taxation rate does little more than punishes entrepreneurship, the motor of any vibrant economy. Corporations are not simply passive price-takers that will accept this tax pressure without downstream consequences. Unsustainably high corporate tax rates pressures businesses to close, downsize, or move to more tax-friendly jurisdictions, decreasing overall revenues. And in a context where emerging economies are taking proactive steps to lure these businesses in, America faces a higher risk of losing these valuable economic agents that provide valuable jobs and income for all Americans.

The upcoming Trump administration should look into reversing this trend and ensure that the U.S. is well positioned to tackle foreign competition by creating a more business-friendly tax ecosystem. Bringing back the corporate rate to 21 percent would be a welcome first step, but a lower than OECD average should be the end goal. With what is shaping to be a Republican-led Senate and a healthy presence (or even majority) in the House, the upcoming Trump administration has the tools to build on TCJA’s success. Taxpayers would be thankful if he did.