Tax Cut Extensions Are 50% Larger
Extending certain parts of the Tax Cuts & Jobs Act (TCJA) would reduce revenue by $4 trillion through 2034, according to new estimates from the Joint Committee on Taxation (JCT) published by the Congressional Budget Office (CBO). These revenue loss estimates have increased dramatically compared to prior estimates.
Comparing the fiscal impact of extending major elements of the TCJA over common years, we estimate:
- The impact of extension has grown by roughly 50 percent since the first extension estimate back in 2018, the equivalent of $1.2 trillion through 2034.
- While inflation and economic growth explain some of the difference, the tax cuts as a share of GDP are about 30 percent (0.3 percentage points) larger since 2018.
- The larger deficit impact is the result of both the tax cuts reducing revenue more than previously estimated and the base broadening raising revenue by less.
Major elements of the 2017 TCJA are scheduled to expire in 2025, including individual income tax rate cuts, a near-repeal of the Alternative Minimum Tax (AMT), expansions of the standard deduction and child tax credit in place of the personal exemption, limits to the SALT and other itemized deductions, and cuts to the estate tax. 100 percent bonus depreciation for business equipment purchases is also phasing out. (Design your own solution with our Build Your Own Tax Extensions model).
The CBO and JCT have produced estimates on the net cost of extending most of these tax cuts at least five times – in 2018, 2019, 2022, 2023, and 2024. Each time, the nominal cost has risen.
Since each estimate covers different budget windows and a slightly different set of policies, it is helpful to focus on the large policy extensions that all estimates have in common and look to a common year – our analysis focuses on fiscal year (FY) 2028.1 In 2018, CBO estimated extensions of these policies would cost $286 billion in FY 2028; that estimate increased to $311 billion in CBO’s 2019 estimates, $340 billion in 2022, $366 billion in 2023, and $416 billion in 2024.
In other words, the annual cost of extension increased by 46 percent, or $131 billion, between 2018 and 2024. The gap is a bit higher (52 percent) through FY 2027, and – based on this and other available data – is likely to be similar or perhaps a bit lower beyond 2028.
Some of the growth in estimates is the result of the recent surge in inflation, immigration, and other economic variables, which expanded the nominal tax base and thus the nominal revenue loss from most tax cuts. However, the cost of the tax cuts also increased substantially as a share of the economy.
In 2018, CBO projected extending the tax cuts would cost 0.96 percent of GDP for FY 2028. By 2022, that estimate had risen to 1.08 percent of GDP and in their most recent estimates it grew further to 1.26 percent of GDP.
In other words, the FY 2028 cost of extension increased by 31 percent as a share of the economy, or 0.3 percent of GDP, between CBO's 2018 and 2024 estimates. The gap is larger (nearly 38 percent) through 2027, and – based on this and other available data – is likely to be somewhat smaller beyond 2028.
The increase in net costs is due to a combination of greater revenue loss from the tax-cutting provisions and less revenue gain from the base-broadening provisions. In FY 2028, the estimated cost of the major tax cuts went up by $102 billion, while revenue collected from base broadening went down by $29 billion. As a share of GDP, tax cuts grew by 0.10 percentage points while base broadeners shrank by 0.20 percentage points.
Most significantly, the cost of bonus depreciation more than doubled from $25 to $54 billion (0.08 to 0.16 percent of GDP). Meanwhile, the limitation on deducting pass-through business losses against ordinary income is now estimated to raise only a small fraction of what was previously believed – about $5 billion (0.01 percent of GDP) as opposed to $29 billion (0.10 percent of GDP).2
The remaining tax-cutting measures are now projected to cost 12 percent more – a $73 billion or 0.25 percent of GDP increase from 2018 estimates. Meanwhile, projected revenue from limits on itemized deductions and repeal of the personal and dependent exemptions saw little change in nominal dollars, despite higher inflation, higher mortgage interest rates, and larger nominal income. As a share of GDP, revenue collection from these provisions decreased by 11 percent, or 0.12 percentage points.
Projected FY 2028 Cost of Extending Major Parts of the TCJA
| Cost in Billions | Cost as % of GDP | ||||||
|---|---|---|---|---|---|---|---|
| 2018 Est. | 2024 Est. | Change | 2018 Est. | 2024 Est. | Change | ||
| Reduce Tax Rates | $201 | $227 | +$26 | 0.67% | 0.69% | +0.01% | |
| Cut Alternative Minimum Tax | $126 | $140 | +$14 | 0.42% | 0.42% | +0.00% | |
| Increase Standard Deduction | $118 | $132 | +$15 | 0.39% | 0.40% | +0.01% | |
| Expand Child Tax Credit | $82 | $86 | +$3 | 0.28% | 0.26% | -0.02% | |
| Enact Pass-Through Deduction | $62 | $74 | +$12 | 0.21% | 0.22% | +0.02% | |
| Cut Estate Tax | $15 | $17 | +$3 | 0.05% | 0.05% | +0.00% | |
| Provide Bonus Depreciation | $25 | $54 | +$29 | 0.08% | 0.16% | +0.08% | |
| Subtotal, Tax Cuts | $628 | $730 | +$102 | 2.11% | 2.21% | +0.10% | |
| Limit Itemized Deductions | -$124 | -$126 | -$3 | -0.41% | -0.38% | +0.03% | |
| Repeal Personal Exemptions | -$190 | -$183 | +$7 | -0.64% | -0.55% | +0.08% | |
| Limit Pass-Through Loss Rules | -$29 | -$5 | +$24 | -0.10% | -0.01% | +0.08% | |
| Subtotal, Base Broadening | -$342 | -$314 | +$29 | -1.15% | -0.95% | +0.20% | |
| Total | $286 | $416 | +$131 | 0.96% | 1.26% | +0.30% | |
Sources: Congressional Budget Office, Joint Committee on Taxation, Committee for a Responsible Federal Budget.
Note: Limits on Pass-Through Losses is assumed to have expired in 2025 (as opposed to 2028) in 2024 estimate. Policies are “stacked” in different orders and thus may not be fully comparable on an individual basis.
The underlying causes of these higher costs are not entirely clear, though increased investment in equipment and tax avoidance efforts involving SALT cap workarounds and abuse of the 20 percent pass-through deduction have clearly played a role.
Regardless, policymakers will now face a potential $4 trillion cost if they choose to extend large parts of the Tax Cuts & Jobs Act – a cost that was believed to be significantly less than $3 trillion after TCJA was first enacted.
Adding these tax cuts to the national credit card will dramatically worsen an already dismal fiscal picture, putting the debt on a rapid upward trajectory. Policymakers should not extend these tax cuts without offsets, and should instead use the upcoming expiration as an opportunity to enact thoughtful deficit-reducing tax reform.
1 In particular, our analysis focuses on the individual income tax rate cuts, AMT exemption increase, child tax credit (CTC) reform and expansion, increase in standard deduction, pass-through deduction, increase in the estate tax exemption, bonus depreciation, limitations on itemized deduction, limit on pass-through deduction losses, and repeal of personal exemption deductions.
2 Since this provision has already been extended through the end of 2028, CBO has not provided a full-year estimate for FY2028, but estimates the limit would raise $5.3 billion in 2029, $4.4 billion in 2030, and a declining amount down to $2.5 billion in 2034. As recently as last year, projections showed this provision raising about $30 billion per year in the early 2030s.
