For Tax Day, Extend the TCJA

By: Faith Jablokow

This year, Tax Day serves as a reminder the Congress still needs to act to extend the expiring provisions in the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA was a monumental piece of legislation that lowered marginal rates for individuals and encouraged business investment. Today, Congress has a unique opportunity to carry forward the principles of the TCJA, insuring Americans will live under a simplified, pro-growth tax code.

TCJA broadened the tax base and lowered marginal rates, benefitting individuals and families across income levels. The bill permanently lowered the corporate tax rate from 35 percent to 21 percent, stimulating increased corporate investment. The doubling of the standard deduction and the limiting of itemized deduction contributed to simplifying the tax code for the majority of filers. If the TCJA is allowed to expire, 62 percent of filers could see a tax increase, according to the Tax Foundation.

Beyond permanently extending the expiring provisions of the TCJA, there are opportunities to create additional pro-growth measures to benefit businesses and consumers. The reintroduction of research and development (R&D) tax credits would be beneficial to business owners. R&D credits were a part of the tax code for decades prior to the TCJA, but the bill allowed the provision to expire in 2022. Currently, businesses must amortize their expenses over a 5-year period. Allowing for R&D costs to be expensed immediately, thereby reducing the after-tax burden of new research projects, would be a boon to the growth of American businesses.

Additionally, lawmakers should reject calls to raise the state-and-local tax deduction (SALT) above TCJA levels. The $10,000 cap set in 2017 prevented high-tax states like California, New York, and New Jersey from receiving special treatment from the federal government to compensate for burdensome state-level tax policy. Proposals to limit the corporate SALT deduction (C-SALT) are also welcome. It would be best if all SALT and C-SALT deductions were eliminated, but at the very least modest caps – such as the TCJA’s $10,000 cap – should be put in place.

The proper taxation status for carried interest is another part of the tax code that should be maintained. Carried interest is essential for investment managers to contribute to economic growth through broad investment that boosts innovation. Private equity supports job creation and enhances economic competitiveness, and removing the carried interest exemption would do significant damage to crucial business investment.

Congress should avoid including tax gimmicks like exempting tipped income, overtime pay, and Social Security benefits from taxation. These proposals have the potential to distort corporate and worker behavior as well as to worsen the federal government’s already unstable fiscal position. Each of these policies would create distortions in how the tax code treats certain types of employment and should be avoided.

Permanently extending TCJA and reintroducing additional pro-growth provisions to the tax code should be a top priority for lawmakers. With expirations on the horizon at the end of 2025, there is no better time for tax reform.