Budget Reconciliation: Tracking the 2025 Trump Tax Cuts

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• On the campaign trail, and reiterated in his March 4 joint address to Congress, President Trump called for permanence for the 2017 tax law, restoring the state and local tax (SALT) deduction, reducing the corporate tax rate for domestic production, exempting various types of income from the income tax, repealing green energy tax credits, and imposing steep new tariffs.

Analysis

• Some of Trump’s tax proposals are well-designed and would be efficient ways to promote long-run economic growth, such as permanent expensing for machinery, equipment, and research and development (R&D).
• Some of his tax proposals are poorly designed and would worsen the structure of the tax code while only creating a muted impact on long-run economic growth, such as the exemptions for tips and Social Security income.
• Worse yet, Trump’s reliance on import tariffs to offset the cost of tax cuts come with major downsides. Tariffs are a particularly distortive way to raise revenue, especially as they invite foreign retaliation. We estimate Trump’s proposed tariffs and partial retaliation from all trading partners would together offset more than two-thirds of the long-run economic benefit of his proposed tax cuts.
• During the campaign, we estimated Trump’s tax proposals would increase long-run GDP by 0.8 percent, the capital stock by 1.7 percent, wages by 0.8 percent, and employment by 597,000 full-time equivalent jobs. We also estimated the proposals would increase the 10-year budget deficit by $3 trillion conventionally and $2.5 trillion dynamically.

Trump 2024 Campaign Tax Plan: Topline Preliminary Estimates

Details

• Beginning January 1, 2026, most provisions of the 2017 Tax Cuts and Jobs Act (TCJA) will expire. Additionally, several business provisions have already expired or are phasing out. Without Congressional action, expiration of the individual provisions would increase taxes for 62 percent of taxpayers, while extension will significantly reduce federal revenues over the coming decade.

Analysis

• 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).
• Long-run GDP would be 1.1 percent higher, offsetting $710 billion, or 16 percent, of the 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). Long-run GNP would only rise by 0.4 percent, as some of the benefits of the tax cuts and larger economy go to foreigners in the form of higher interest payments on the debt.
• 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 from extending the individual provisions.

TCJA Permanence: Topline Preliminary Estimates