As the TCJA Expires, Policymakers Can Do Better for Low- and Middle-Income Americans

May 28, 2024

As the 2025 expiration of key provisions of the Tax Cuts and Jobs Act (TCJA) looms, Republicans in Congress are working to make the tax law permanent. They argue the 2017 tax cuts contributed to economic growth and benefited working-class Americans and small businesses, and they’re sounding alarms that if cuts expire, lower- and middle-income Americans will face a tax hike. This assertion, while politically powerful, falls apart when you look under the hood at the actual data. 

In a recent House Committee on Ways and Means hearing, proponents hailed the 2017 law as a policy made for the benefit of hardworking Americans, claiming that it increases taxes for the top 1 percent while reducing the taxes paid by low- and middle-income taxpayers. However, in reality, the TCJA granted the richest 1 percent a 67-times-larger tax cut than the average American saw. 

Supporters of the TCJA falsely claim that the law spurred historic economic growth—in fact, the 2017 tax law failed to meet its growth projections. Despite predictions that it would increase GDP by between 0.3 and 0.8 percent by 2018, the TCJA raised GDP by only 0.2 percent. As economist Kathryn Anne Edwards summarizes, from a budgetary perspective, the TCJA “was an overwhelming loss.” While the TCJA theoretically enhanced incentives for corporate investment by increasing tax breaks for capital expenditures, research, and development, in practice those investments didn’t pan out. Instead, corporate profits soared, capital expenditures decreased, and stock buybacks, rather than investments, increased. If anything grew as a result of the TCJA, it was returned to shareholders. 

Proponents claim that the TCJA created the “best economy of our lifetime.” Underpinning this argument is the idea that tax cuts for corporations and the wealthy fuel job creation, but as my colleagues have previously demonstrated, trickle-down economics doesn’t work and must be put to rest. Tax cuts for high-income individuals and corporations worsen already stark wealth inequality, increasing shareholder profits without supporting job growth or wage increases for low- and middle-income earners. At the time Congress was considering the TCJA, the Trump administration claimed that the slash in the corporate tax rate would, “very conservatively,” lead to a $4,000 increase in average household income. However, research by the Center on Budget and Policy Priorities found that the bottom 90 percent of earners in 2016 saw no change in earnings, while executive salaries increased significantly. In fact, 81 percent of wage gains from the corporate tax cut went to the top 10 percent of earners.

The Congressional Budget Office estimates that if the TCJA is extended for the next 10 years (as supporters of the law propose), it would reduce federal revenues by $4.6 trillion. What could we do with $4.6 trillion? That’s about 5.3 times more than what it would cost to provide universal affordable public childcare. Federal investments in childcare can boost labor force participation, especially among women, as previously highlighted by the Roosevelt Institute. Additionally, $4.6 trillion is more than 20 times the $225 billion cost of providing universal paid family and medical leave, which would provide a multitude of economic benefits, including increased women’s labor force participation and household incomes. With $4.6 trillion, Congress could also eliminate the entirety of the $1.73 trillion student debt burden in the US, which would increase Americans’ wealth and help shrink the racial wealth gap. These initiatives are proven to contribute to significant economic growth, unlike tax cuts that fail to deliver for working-class Americans. 

Americans deserve a tax system that works for everyone, not just the highest earners. Additionally, reducing the TCJA debate to either renewing the policy or letting it expire boxes out an opportunity to reexamine what taxes could do to benefit the nation, as my colleague Elizabeth Pancotti discusses in a recent paper. The upcoming expiration of key TCJA provisions offers us a chance to reevaluate what a fair and equitable tax code could look like and to enact tax policy that funds the kinds of public investments working-class Americans need.