Like Your Taxes Low? Trump and Republicans Want to Keep It That Way.
Carrie Sheffield /
Sunday is the seven-year anniversary of the Tax Cuts and Jobs Act, a landmark piece of legislation that contributed to historic economic prosperity under the first Trump administration.
In December 2017, a Republican Congress passed and President Donald Trump signed this package of sweeping reforms into the U.S. tax code, both for individual filers and corporations. Next year, Congress and Trump are poised to renew the expiring provisions of the law as well as add additional reforms.
The Tax Cuts and Jobs Act cut income tax rates for workers at every level and nearly doubled the standard deduction, shielding more income from taxation. It expanded the child tax credit and preserved other popular tax benefits like the deductions for mortgage interest and charitable deductions, among others.
Tyler Cowen, an economics professor at George Mason University, reported in July—some 6 1/2 years after the legislation took effect—that as a result of the law, “total tangible corporate investment went up by about 11%” and “there has been a long-run increase in GDP [gross domestic product] of 0.9%—a substantial sum in an economy of more than $27 trillion.”
Before the Tax Cuts and Jobs Act, American corporations faced one of the world’s highest statutory corporate income tax rates at 35%. The tax law lowered this rate to 21%, putting the U.S. rate near the global average. Many small businesses known as “pass-through entities” (because income “passes through” to the owner and is taxed as the owner’s personal income) benefited from tax reform because the law provides them with a 20% deduction on business profits.
This substantial reduction of the corporate tax rate largely benefited workers, who indirectly pay the lion’s share of corporate taxes through reduced wages and benefits. Corporations responded to the reduced corporate income tax rate with immediate investments in their workforces through wage raises, bonuses, expanded benefits and training programs, and new jobs.
American families could keep more money from every paycheck. In the two years after the Tax Cuts and Jobs Act was signed into law, real wages rose by 4.9%—the fastest growth in 20 years. This law also lowered the income tax rates and adjusted the income thresholds for each bracket, resulting in lower income tax liabilities for people at every income level. Additionally, it nearly doubled the standard deduction, simplifying taxes for many earners because they no longer had to itemize their deductions, and expanded the child tax credit in size and to more households.
These results suggested the tax reform law helped American families, expanded work opportunities, and fostered strong economic growth. If the law is not extended, the Tax Foundation finds that more than 62% of tax filers will experience tax increases in 2026. The average family of four making $75,000 a year is projected to see their taxes increase by $1,500 if Congress does not take action on the tax law.
Trump vowed on the 2024 campaign trail to build on the expiring tax cuts by eliminating taxes on tips, overtime, and Social Security benefits. These would save households money and assist small businesses’ profitability.
Small businesses are the foundation of the U.S. economy. These “pass-through” businesses, which include sole proprietorships, partnerships, and Subchapter-S corporations, are critical to our economy, employing nearly half of the American workforce and representing nearly 44% of America’s gross domestic product.
Prior to the Tax Cuts and Jobs Act, some small businesses that filed through the individual income tax code faced tax rates of up to 39.6%. Less than a year after the tax law’s enactment, the National Federation of Independent Business’ small-business optimism index hit the highest level ever recorded during its 45-year history (the previous record was in 1983, set during the second year of Ronald Reagan’s presidency).
A significant challenge facing these businesses is the expiration of the 20% small business deduction at the end of next year, which could lead to small businesses facing increased taxes. It was viewed as a means to reduce tax burdens for small and mid-sized businesses, similar to how C-corporations benefited from the corporate tax rate cut.
Polling shows the Tax Cuts and Jobs Act is widely popular and that a majority of Americans say that failing to renew the 2017 tax cuts would hurt middle-class families, small businesses, American consumers, and the economy.
The big question will be how these tax cuts will be “paid for.” Trump created the Department of Government Efficiency to reduce government waste. Trump will also work with Congress, which could also extend the cuts just temporarily to control costs.
Critics falsely claim that the renewing the law will lead to a decrease in government revenue; however, as The Wall Street Journal reported in November, “More than six years after the TCJA [Tax Cuts and Jobs Act] took effect, tax revenue has exceeded CBO [Congressional Budget Office] projections from June 2017. By 2023, annual tax revenue had recovered from the COVID-19 recession and returned to its historical average of about 16.5% of GDP [gross domestic product].”
It’s clear the American people desire a simpler, fairer tax system, and enacting sensible reforms, extensions and updates to the Tax Cuts and Jobs Act will do just that. Making tax rate reductions permanent will lower taxes for most taxpayers—a critical need for Americans seeking economic relief.
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