Making the Tax Cuts and Jobs Act Permanent: Economic, Revenue, and Distributional Effects

Key Findings

• Permanently extending the expiring individual, estate, and business taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. provisions would boost long-run economic output by 1.1 percent, national income by 0.4 percent, the capital stock by 0.7 percent, wages by 0.5 percent, and hours worked by 847,000 full-time equivalent jobs.
• Over the 2025 through 2034 budget window, permanence for the expiring TCJA individual provisions will reduce federal tax revenue by $3.6 trillion ($3.2 trillion dynamically), the expiring estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. provisions by $240 billion ($240 billion dynamically), and the expiring business provisions by $648 billion ($351 billion dynamically).
• Overall, economic growth will offset $710 billion, or 16 percent, of the combined $4.5 trillion in revenue losses.
• The $4.5 trillion reduction in tax revenues would increase the budget deficit and push up interest costs by an estimated $941 billion ($806 billion dynamically).
• Added interest costs plus the revenue losses from TCJA extension result in a combined deficit increase of $5.4 trillion ($4.6 trillion dynamically) from 2025 through 2034.
• Long-run debt-to-GDP would increase from its baseline projection of 184 percent in 2060 to 212 percent conventionally and 205 percent dynamically.
• As a result of the tax cuts, after-tax incomes would rise by 2.9 percent (3.4 percent dynamically) in 2026 on average. The share of filers who itemize would drop from 33 percent to 13 percent, and 62 percent of filers would see a tax cut.

The Expiring Individual and Estate Tax Changes

Beginning January 1, 2026, most provisions of the 2017 Tax Cuts and Jobs Act will expire, including:

• Lower rates and wider thresholds across most brackets
• Larger standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.
• $2,000 max child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. that phases in at a lower income threshold and phases out at a higher income threshold, with a $500 nonrefundable other dependent credit
• Zeroed out personal exemptions
• Limitations on the state and local taxes (SALT) deduction and the home mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. ; eliminated Pease limitation and miscellaneous itemized deductions
• Section 199A pass-through deduction and noncorporate loss limitation
• Larger exemption and higher exemption phaseout thresholds for the alternative minimum tax (AMT)
• Doubled estate and gift tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax.

The Expiring (or already expired/phasing out) Business Provisions

The following business provisions have also expired or are scheduled to expire:

• 100 percent bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. (began phasing out after the end of 2022)
• Research & development expensing (expired after the end of 2021, switched to five-year amortization of R&D expenses)
• EBITDA-based limitation on the net business interest deduction (expired at the end of 2021, replaced with EBIT)

Economic Effects

Permanently extending the expiring individual, estate, and business tax provisions would boost long-run economic output by 1.1 percent, the capital stock by 0.7 percent, wages by 0.5 percent, and hours worked by 847,000 full-time equivalent jobs. Extending the expiring individual tax provisions adds 0.4 percent to long-run GDP, while the business provisions add 0.7 percent. Extending the estate tax provisions leaves GDP unchanged but boosts domestic saving, resulting in an increase in American incomes as measured by GNP.

Increased interest payments, the result of reducing tax revenues by $4.5 trillion over the budget window, would require higher interest payments on the debt, and reduce American incomes as measured by GNP by 1.0 percent. Deficit-financing of the tax cuts thus drives a wedge between the long-run increase in output of 1.1 percent and the long-run change in American incomes of 0.4 percent.

Table 1. Economic Effects of TCJA Permanence 

Note: Totals may not sum due to rounding. 
Source: Tax Foundation General Equilibrium Model, February 2025. 

The lower rates and wider bracket thresholds have the largest GDP effect, increasing the long-run economy by 1 percent. Extending 100 percent bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. and the Section 199A pass-through deduction and corporate loss limitation increase GDP by 0.5 percent each in the long run. The $10,000 cap on state and local tax deductions (SALT) has the biggest negative economic effect, reducing long-run GDP by 0.6 percent through higher marginal tax rates for itemizers.

Table 2. Economic Effects of TCJA Permanence Provisions and Deficit Financing 

Note: Totals may not sum due to rounding. 
Source: Tax Foundation General Equilibrium Model, February 2025. 

Most of the projected long-run economic effect would occur within the budget window. The immediate impact would occur because of the lower tax burden on labor and resulting increase in hours worked, while the effect of lower tax rates on capital investment would occur more slowly as the capital stock buildout takes longer. The pattern of TCJA individual permanence varies over the budget window, as output receives an immediate boost from a lower tax burden on labor, but the capital stock shrinks as the tax burden on housing investment rises from the combination of limitations on itemized deductions and the larger standard deduction.

Revenue Effects

We estimate that over the 2025 through 2034 budget window, permanence for the expiring TCJA individual provisions will reduce federal tax revenue by $3.6 trillion ($3.2 trillion dynamically), the expiring estate tax provisions by $240 billion ($240 billion dynamically), and the expiring business provisions by $648 billion ($351 billion dynamically). Overall, economic growth will offset $710 billion, or 16 percent, of the combined $4.5 trillion in revenue losses. A provision-by-provision conventional and dynamic revenue table is available for download.

TCJA permanence entails a gross tax cut of $7.9 trillion over the budget window, offset by $3.4 trillion of base broadeners, for a net tax cut of $4.5 trillion. The $4.5 trillion reduction in tax revenues would increase the budget deficit and push up interest costs by an estimated $941 billion ($806 billion dynamically). Added interest costs plus the revenue losses from TCJA extension result in a combined deficit increase of $5.4 trillion ($4.6 trillion dynamically) from 2025 through 2034.

Download Detailed Revenue Table

Table 3. Revenue Effects of TCJA Permanence

Source: Tax Foundation General Equilibrium Model, February 2025. 

When extending TCJA permanently via deficit financing, the long-run debt-to-GDP ratio would increase from its baseline projection of 184 percent by 2060 to 212 percent conventionally and 205 percent dynamically. Even with additional economic growth from the tax cuts, the increased deficit and added interest payments result in an increase in long-run debt-to-GDP of 20 percentage points.

Table 4. Change in Long-Run Debt-to-GDP Under TCJA Permanence

Source: Tax Foundation General Equilibrium Model, February 2025. 

Distributional Effects

We estimate permanently extending the expiring individual, estate, and business tax provisions would boost after-tax incomes by 2.9 percent (3.4 percent dynamically) in 2026 on average. The top quintile would see a 3.3 percent increase on average, while the bottom quintile would see a 2.8 percent increase on average.

Table 5. Distributional Effects of TCJA Permanence

Note: Market income includes adjusted gross income (AGI) plus 1) tax-exempt interest, 2) nontaxable Social Security income, 3) the employer share of payroll taxes, 4) imputed corporate tax liability, 5) employer-sponsored health insurance and other fringe benefits; and 6) taxpayers’ imputed contributions to defined-contribution pension plans. Market income levels are adjusted for the number of exemptions reported on each return to make tax units more comparable. After-tax income is market income less: individual income tax, corporate income tax, payroll taxes, estate and gift tax, custom duties, and excise taxes. The 2025 income break points by percentile are: 20%-$17,080; 40%-$37,364; 60%-$71,067; 80%-$125,315; 90%-$181,001; 95%-$255,840; 99%-$583,741. Tax units with negative market income and non-filers are excluded from calculating the percentile groups but included in the totals. 
Source: Tax Foundation General Equilibrium Model, February 2025.  

We estimate that under permanence for the expiring individual provisions, the average tax rateThe average tax rate is the total tax paid divided by taxable income. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. for all filers would drop from 20.9 percent to 19.4 percent while the share of filers who itemize would decrease from 33 percent to 13 percent. Under permanence for the expiring individual provisions, 9 percent of filers would see a tax increase, including 22 percent in the top 1 percent, while 62 percent of filers would see a tax decrease. The remaining filers would see no meaningful change in tax liability.

Table 6. Average Tax Rates and Shares of Filers Who Itemize and See a Tax Increase or Decrease under TCJA Permanence, 2026

Note: Total excludes tax units with negative market income and non-filers. Average income tax rates reflect income tax paid after nonrefundable and refundable tax credits over market income.
Source: Tax Foundation General Equilibrium Model, February 2025.  

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