TCJA Extension Could Add $4 to $5 Trillion to Deficits

Our newly-released Build Your Own Tax Extensions tool is now updated to reflect the most recent estimates by the Congressional Budget Office (CBO) on the effect of extending expiring provisions of the Tax Cuts and Jobs Act (TCJA), along with other updated data. The revenue impact of extending TCJA provisions has grown in this latest update. The tool shows that through Fiscal Year (FY) 2035:

• Extending the individual and estate tax provisions of the TCJA expiring at the end of Calendar Year (CY) 2025 would add $3.9 trillion ($4.5 trillion with interest) to deficits through FY 2035, up from $3.4 trillion previously.
• Extending nearly all expired, expiring, and changing tax provisions would add $5.2 trillion ($6.1 trillion with interest) to deficits through FY 2035, up from $4.7 trillion previously.
• These extensions would increase debt in FY 2035 by 10.5 to 14.2 percent of GDP, growing from 97 percent of GDP at the end of 2023 to between 128.5 and 132.2 percent by 2035.

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Most of the TCJA’s individual and estate tax provisions are scheduled to expire at the end of CY 2025. This includes lower tax rates, expansions of the child tax credit and standard deduction in place of the personal and dependent exemptions, near-repeal of the Alternative Minimum Tax (AMT), limitations on the state and local tax (SALT) deduction and other itemized deductions, a new deduction for pass-through income, and an increase in the estate tax exemption, among other provisions.

If all these provisions were extended in full, they would reduce revenue by $3.9 trillion, or 1.1 percent of GDP, through FY 2035 relative to current law. By 2035, this would increase the national debt by 10.5 percent of GDP, with annual revenue loss approaching $500 billion per year.

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Driving this revenue loss are the cuts to individual income tax rates, which we estimate would lose $3.4 trillion over a decade (assuming the near-repeal of the AMT is also extended). That AMT cut would lose another $630 billion, while the 20 percent pass-through deduction (199a) would lose $780 billion. The $10,000 per filer cap on the SALT deduction would raise about $1.2 trillion. See the appendix table for a full breakdown.

A broader extension of tax cuts could prove even more expensive. Under current law, 100 percent bonus depreciation for equipment is currently phasing out, businesses have been required to amortize research and experimentation (R&E) costs since CY 2023, TCJA’s limit on interest deductibility tightened starting in 2022, and the rates of TCJA’s multinational tax provisions are scheduled to increase in 2026.

Reviving, canceling, and extending these tax changes – essentially reverting to 2021 tax law – would cost an additional $880 billion through FY 2035. This would bring the total cost of extension up to $4.8 trillion through 2035, lowering revenue by 1.3 percent of GDP and boosting debt in 2035 by 12.9 percent of GDP. By 2035, annual revenue losses would approach $550 billion per year.

Extending various non-TCJA policies – including the expansion of the Affordable Care Act’s premium tax credits, the Inflation Reduction Act’s intentionally-temporary green energy credits, and additional funding for the Internal Revenue Service – would cost another $470 billion on net.

Under this scenario (which you can select with “Extend All” in the Build Your Own Tax Extensions tool), Treasury would lose $5.2 trillion through FY 2035. Revenue would decline by 1.4 percent of GDP, debt would be 14.2 percent of GDP higher by 2035, and revenue loss would exceed $600 billion per year by the end of the period.

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While these scenarios focus on extensions and revivals of TCJA’s policies, Build Your Own Tax Extensions allows users to explore a myriad of alternative paths. Through popular pre-defined options and custom inputs, this tool allows users to design fiscally responsible tax reform in advance of TCJA’s expirations.

Given the immense cost, policymakers should not enact a deficit-financed extension of all or part of the TCJA. Ideally, they should use these expirations as an opportunity to implement thoughtful and pro-growth tax reform that – at a minimum – stops deficits from rising further than under the already unsustainable current law baseline. Many such plans already exist. The Build Your Own Tax Extensions tool allows users to design their own.