A call to extend 2017's Tax Cuts and Jobs Act

Vice President Kamala Harris has said she would raise the corporate tax rate; she has previously supported repealing Republicans’ tax cuts altogether.  

With many of the Republican-enacted Tax Cuts and Jobs Act provisions set to expire at the end of 2025, and amid Democrats’ continued attacks on many of those provisions, now is a good time to evaluate how the bill really worked.  How did its changes affect Americans’ tax bills?  What happens to tax bills if the cuts expire? 

TCJA lowered tax rates across the board for all Americans, not just — as opponents of the bill suggest — for the uber-wealthy.  The majority of TCJA’s benefits accrued to working middle-class families, who on average received a tax cut ranging from $1,500 to $3,000.  Between the bill’s passage in 2017 and 2021, the bottom 50 percent of earners received the largest reduction in average tax rates at 17.3 percent.  The top 5 percent of earners received a 1.7 percent average tax rate reduction, while some in the top 1 percent actually saw their taxes go up.  The TCJA also doubled the standard deduction and the child tax credit, delivered additional help to lower-income workers, and provided tax relief to America’s entrepreneurs and small businesses.

The effects of pro-growth tax reform were almost immediate.  Not only did taxpayers get to keep more of their hard-earned money, but a growing economy helped median household income reach an all-time high of $68,703 in 2019, almost a seven percent increase over the previous year.  The labor market improved.  Workers saw wage growth of about $1,400 in annual earnings compared to the pre-TCJA wage trend.  The unemployment rate fell dramatically to 3.5 percent--the lowest in 50 years.

Before TCJA, the U.S. had the highest corporate tax rate in the industrialized world.  Lowering the corporate rate to 21 percent put the U.S. at roughly the average rate among developed countries and our trading partners.  A competitive corporate rate, combined with incentivizing businesses to bring foreign earnings back to America, dramatically increased domestic investment and lowered the number of foreign acquisitions of American companies.  Many U.S. businesses that had moved their headquarters overseas came back home.  Since the TCJA’s passage, not a single U.S. company has moved its headquarters abroad for tax purposes, creating more opportunities for Americans. 

Ultimately, the biggest winners of a lower corporate tax rate are middle-class Americans.  Research shows corporate tax increases get passed on to workers, consumers and retirees.  According to the nonpartisan Joint Committee on Taxation, the majority of that burden hits households making less than $400,000 per year.  Inversely, with a lower corporate tax rate and within the first two years of implementation of TCJA, U.S. companies added 4.7 million new jobs and real median household incomes grew by more than $5,000. 

Under Republican leadership, all Americans reaped the benefits of a flourishing economy, yet Democrats have declared that they want to let TCJA expire.  Its expiration would mean a sharp tax hike for almost every American.  The average family of four making $75,000 could expect a tax increase of at least $1,500 or more.  Their child tax credit will also be cut in half.  All this, while most Americans are paying more than $1,000 more each month compared to January 2021, thanks to persistently high inflation caused by Democrats’ excessive spending and other misguided policies. 

Our current tax system can undoubtedly be improved.  Building upon the TCJA’s foundation should be the topic of serious discussion as we head into 2025.  We must prevent tax hikes on hardworking families and ensure America remains the most attractive place to do business.

Mike Crapo represents the state of Idaho in the U.S. Senate. He can be reached at crapo.senate.gov.