Treasury analysis reveals making Trump's tax cuts permanent would largely benefit high-income earners, costing trillions. Explore the implications.
An examination from the U.S. Treasury indicates that making the Trump tax reductions permanent would disproportionately benefit those with the highest incomes.
Among the primary objectives for Republicans within the initial 100 days of a prospective administration featuring President-elect Donald Trump in the executive office and GOP legislators in control is the intention to renew approximately $4 trillion in tax cuts set to expire.
On Friday, the Department of the Treasury in the United States published a new analysis detailing the various ways in which prolonging the expiring individual and estate tax elements of Trump’s 2017 tax legislation — formally known as the Tax Cuts and Jobs Act — could impact government finances, and which groups would directly gain the most from the legislation’s permanent continuation.
For example, the Treasury’s Office of Tax Analysis projects that the highest-earning 0.1% of individuals would experience a tax reduction of $314,000 under a complete extension of the individual and estate tax elements, with the total expenditure of these tax reductions totaling $4.2 trillion between 2026 and 2035.
Should the tax reductions be extended solely for households earning $400,000 or less annually — a commitment made by President Joe Biden and Vice President Kamala Harris during the 2024 election campaign — this action would decrease the financial impact of prolonging expiring TCJA elements to $1.8 trillion, representing less than half the financial impact of extending all individual and estate tax reductions.
A Treasury official indicated that the comprehensive analysis is intended to present Congress with options for the challenging decisions ahead — specifically, how to finance the tax reductions given the federal debt exceeding $36 trillion.
The TCJA, the most substantial tax modification in a generation, represents the key domestic achievement of Trump’s initial term and an issue that may characterize his potential return to the White House.
Trump favors extending all the expiring provisions, while Republicans have pledged to reduce federal spending. Determining how to fund the tax extensions while meeting the incoming president's demands will complicate congressional negotiations.
In addition to his plan to extend the tax reductions, Trump introduced proposals during the 2024 campaign intended to benefit working- and middle-class Americans: exempting earned tips, Social Security wages, and overtime wages from income taxes.
Legislators are also contemplating temporarily doubling a $10,000 limit on state and local tax deductions for most married couples, which the Committee for a Responsible Federal Budget estimates would lower revenues by $170 billion.
Republicans have committed to reversing the energy tax credits established by Biden's Inflation Reduction Act, as well as income tax increases on the wealthiest Americans.
The majority of the TCJA’s revisions to the individual tax code are temporary and are scheduled to expire by the close of 2025.
The Urban-Brookings Tax Policy Center reported in July that households earning approximately $450,000 or more would receive over 45% of the benefits from extending key elements of the 2017 legislation.
Furthermore, the Penn Wharton Budget model estimates that permanently extending the TCJA would increase deficits by $4 trillion over the subsequent decade.
Republicans assert that the tax reductions stimulate economic growth, as reduced taxes generate increased economic activity. “Many of the provisions of the TCJA were formulated to encourage greater economic growth,” stated Neil Bradley and Watson McLeish of the U.S. Chamber of Commerce in an August report.