The Future of the Trump The Trump Tax Cuts: A Lifeline for Working Families or a Handout to the Wealthy?
On January 14, 2025, the House Ways and Means Committee held a crucial hearing to discuss the future of the 2017 Tax Cuts and Jobs Act (TCJA) and whether or not its provisions should be made permanent. This hearing brought together a diverse panel of witnesses, including small business owners, working families, and economic policy experts, to share their perspectives on the potential impact of these tax cuts.
The Case for Making the Tax Cuts Permanent
Proponents of making the tax cuts permanent argued that they are essential for economic growth and for supporting working families and small businesses.
Certainty for Businesses: Several witnesses emphasized the importance of certainty and predictability in the tax code. Michelle Gallagher, a CPA with 35 years of experience, noted that businesses and farmers need to be able to plan for the future and that the uncertainty surrounding the TCJA is causing them to delay or forgo investments.
Small Business Deduction (Section 199A): Allison Couch, a small business owner, highlighted the importance of the 20% small business deduction (section 199A). She explained that this deduction allows small business owners to reinvest in their businesses and employees. Couch also argued that letting the deduction expire would feel like a tax increase for small business owners.
Manufacturing Growth: Courtney Silver, president of a precision machine shop, testified that the TCJA was revolutionary for manufacturers, allowing them to invest in equipment and create jobs. Silver also noted that the loss of immediate R&D expensing and other provisions would hurt her ability to grow and create jobs. She emphasized the importance of predictable tax policies for manufacturing. She stated that her company was able to invest over $1 million in capital equipment, create new jobs, upgrade their security and HVAC systems, and provide raises and bonuses to all employees. She also created an internship program for high school students from economically disadvantaged situations, which was made possible due to tax reform.
Job Creation: According to the National Association of Manufacturers, extending the Trump tax cuts would save 6 million jobs, including 1.1 million manufacturing jobs. It is also estimated that the tax cuts would create 1 million new small business jobs each year.
Estate Tax Relief: Gallagher and others highlighted the negative impact of the estate tax on family businesses and farms. She explained that the estate tax can force family businesses to close or be acquired by larger corporations because they lack the cash or liquidity to pay the taxes. She also noted that the compliance costs associated with the estate tax are higher than the revenue it generates.
Child Tax Credit (CTC): Witnesses also discussed the importance of the CTC, which was expanded under the TCJA. Margaret Marple, a mother of three, testified that the CTC has made a huge difference for her family. She highlighted the importance of making the CTC permanent and considering further improvements.
The Counterarguments: Who Really Benefits?
On the other hand, critics argued that the TCJA disproportionately benefits the wealthy and corporations, while doing little to help working families.
Tax Cuts for the Wealthy: Brendan Duke, from the Center for American Progress, argued that the TCJA was a giant tax cut for corporations and wealthy business owners. He pointed out that the majority of the benefits from the 199A deduction go to millionaires . Duke also said that letting the tax cuts for the wealthy expire is the correct choice.
Unequal Distribution: According to the Joint Committee on Taxation, a taxpayer who made a million dollars last year would receive a tax cut of $78,750, while a taxpayer who made under $50,000 would only get $273. One source stated that taxpayers with adjusted gross incomes above $664,000 receive over 50% of the 199A deduction.
Lack of Trickle-Down Effect: Some argued that the benefits of the corporate tax cuts didn't "trickle down" to workers, with the bottom 90% of workers' wages being unaffected. According to one source, cutting the top rate on pass-through entities only benefits the business owner and their highest paid employees.
Increased Deficit: Critics noted that extending the tax cuts would add trillions to the national debt. The Treasury Department released a report that said that extending the TCJA would add $1.8 trillion to the debt. One source also notes that the cost of extending all tax provisions is half of the cost of the increase in interest rates.
Missed Opportunity: It was also argued that the money used for the tax cuts could be better spent on programs that benefit low- and middle-income families, such as the child tax credit and the earned income tax credit. One source notes that the American Rescue Plan's expansion of the Earned Income Tax Credit tripled the size of the credit for low-wage workers.
Focus on Corporate Tax Cuts: Some argued that the tax cuts prioritized corporations while making tax reductions for small businesses and families temporary.
The Impact on Families
The hearing also highlighted the potential impact of the TCJA on families.
Child Tax Credit: The expanded CTC has been a lifeline for many working families, helping them cover essential expenses. If the TCJA expires, the CTC would be cut in half. This could make it more difficult for families to afford basic necessities and educational costs.
Tax Increases: Some sources noted that the average taxpayer would see a 22% tax hike if the tax cuts expire. This could have a significant impact on family budgets, especially given the current economic climate.
The 1099K Threshold: One source highlighted the problem with the 1099K reporting threshold, which was changed to $600 over a single transaction, thus creating burdensome requirements for small business owners and others who sell goods online.
The Path Forward
The hearing made it clear that there are strong arguments on both sides of the debate over the future of the Trump tax cuts. Some members of the committee expressed a desire to find common ground and work together to create tax policies that benefit all Americans. Some suggested ideas such as:
Extending the Child Tax Credit and the Earned Income Tax Credit.
Creating a baby bonus or increasing the CTC for families with young children.
Limiting the salt deduction to primary residences and targeting it to the middle class.
Restoring the 1099K threshold to pre-ARPA levels.
Expanding the size of the deduction for start-up expenses.
Providing incentives for paid family medical leave rather than mandates.
The question of what to do with the TCJA is a complex one, and it is clear that Congress will need to consider all perspectives before making a decision. The future of the American economy, and the financial security of millions of families, hangs in the balance.