Tax Tracker | TCJA Anniversary, Government Scorekeepers, Reconciliation Strategy

Links for the 2025 tax debate.

December 22, 2024, marks the seventh anniversary of signing the Tax Cuts and Jobs Act (TCJA) into law.¹ This week’s Tax Tracker starts with a brief overview of the law and resources for the expiration.

We also highlight recent reports on tax cuts and economic growth from government scorekeepers and developments in the reconciliation debate. We end with quick hits on other topics in the news, including the child tax credit (CTC), tariffs, and the Department of Government Efficiency (DOGE). Plus, a story on how taxes on unrealized gains destroy entrepreneurship and uproot lives.

The TCJA was both a tax cut—cutting taxes at every income level—and the most significant tax simplification in 30 years—saving Americans as much as $5.4 billion by streamlining taxpaying for about 30 million taxpayers. The tax cuts—particularly the business tax cuts—resulted in additional investment, higher wages, declining inequality, and a larger economy.

The law wasn’t perfect. It left hundreds of billions of dollars in tax subsidies untouched while adding several new ones, left taxes on capital gains unchanged, and made parts of the tax code more complex. The TCJA also largely expires at the end of 2025, blunting some of its economic benefits.

Our first edition of the Tax Tracker included many of the resources Congress, reporters, and interested taxpayers need to understand the background and options going forward. The Congressional Research Service also recently released descriptions of the TCJA's expiring provisions.

Here are the rest of this week’s tax highlights:

Dueling government estimates from CBO and JCT. The Congressional Budget Office (CBO) released estimates showing that the economic cost of additional debt from extending the TCJA’s individual provisions outweighs the tax cuts' benefits. However, the second set of CBO estimates shows that extending the Trump tax cuts will boost the economy despite the drag of additional government debt when paired with making the business tax cuts permanent.

The Joint Committee on Taxation (JCT) also released economic estimates showing that extending the individual tax cuts could lead to GDP gains between 0.2 percent and 0.9 percent and about $372 billion in dynamic revenue gain (offsetting 11 percent of the static revenue loss). Adding business tax cuts to the JCT estimates would produce even larger gains.

Tax Foundation’s William McBride provides a useful comparison of the two modeling approaches, noting that CBO may overestimate the negative effects of the debt drag and reminding us that “it is JCT’s responsibility to officially score tax legislation.”

Related links:

• CBO’s Analysis Shows Importance of Fiscally-Sustainable Tax Reform

  Kyle Pomerleau, American Enterprise Institute

• New CBO Report on Growth and Tax Cuts Tells Only Half the Story

  Adam N. Michel, Cato Institute

• Tax Cuts Take Lead Over Deficit Worries in GOP’s Internal Fight

  Richard Rubin, Wall Street Journal

To do reconciliation once or twice? The debate rages on over the best tactical strategy for reconciliation. Incoming Senate Majority Leader John Thune’s (R-SD) two-package strategy was endorsed by Trump’s deputy chief of policy, Stephen Miller, and the Wall Street Journal editorial board, which makes the case that a smaller first “reconciliation bill that includes unifying GOP priorities would post an early win” for Trump.

Ways and Means Chair Jason Smith (R-MO) is pushing for one big reconciliation package, which has picked up support from Americans for Tax Reform president Grover Norquist. Norquist worries that Thune’s strategy will delay tax cuts, resulting in lost economic gains and political blowback. Longtime tax reform advocate Steve Forbes makes a similar case, arguing that passing tax reform early in the year is an economic imperative.

Both sides are likely right. Dropping taxes from the first bill will make it easier to pass and give Trump a quick win, but splitting up the package increases the chance that tax cuts get punted to the end of the year and increases the likelihood of a not very pro-growth temporary extension.

Hawley goes big on child tax credit. Senator Josh Hawley (R-MO) proposed expanding the CTC from $2,000 per child to $5,000. Hawley’s plan could cost between $2 trillion and $3 trillion over ten years. Read more here about how the TCJA reformed the tax subsidy for children without expanding it and why following a similar approach in 2025 would be a more fiscally responsible choice (short of full repeal, of course).

Don’t fund tax cuts with tariffs. My colleague Scott Lincicome and I recently made the case against Treasury Secretary nominee Scott Bessent’s proposed “three-legged stool” approach to tariffs. In short, tariffs are a poor source of revenue, they are bad at protecting domestic industries, and they don’t operate well as a negotiating tool.

Cato DOGE report. Cato released a report covering 23 policy areas, identifying about $2 trillion in annual savings. Come for the chapters on radical tax simplification and defunding the OECD; stay for eliminating DEI programs, privatizing the US Postal Service, and headcount reductions for federal employees.

The power to tax is the power to destroy. In a short article for The Free Press, titled “Why I Left Norway,” Fredrik Haga tells the story of how an unrealized gains tax in his home country made it impossible for him to build a successful business. He writes, “I did what an increasing number of Norwegian entrepreneurs have done. I said goodbye to my friends and family and moved to Switzerland.”

1. Fun fact: The law's official name is the “Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018.” The TCJA title was removed during reconciliation after Senator Bernie Sanders (I-VT) raised a Byrd Rule point of order.