Extending TCJA Tax Cuts Could Cost $3.5 Trillion Over 10 Years

The CBO issued a report yesterday indicating extending the Tax Cuts and Jobs Act tax changes for 10 years could cost $3.5 trillion over 10 years. This will be tough in today's political environment.

The Tax Cuts and Jobs Act had many tax provisions that expire after 2025. These include the lower tax rates, the increase standard deduction without a deduction for personal exemptions, the higher estate tax exemption, etc.

Many Republicans have tried to get an extension of these cuts or make them permanent. However, we now have these same Republicans and others stressing a reduction in the deficit and it would be difficult to get an extension with this large of a price.

How does the cost break down in the report:

• Individual tax provisions would reduce tax collections by about $820 billion for 2024-2028 and over ten years about $2.5 trillion.

• The extension of a higher estate tax exemption costs about $32 billion for 2024-2028 and $126 billion over ten years.

• Extension of 100% bonus depreciation costs about $213 billion for 2024-2028 and $325 billion over ten years.

We know that President Biden had proposed making permanent or extending the benefits for those earning less than $400,000 per year. The report did not issue any guidance on how much this would cost, but I would expect it to be at least 50% of the estimate or more.

As you can see, the chances of getting a permanent extension of the TCJA changes after 2025 faces a large uphill battle. I believe that some of them will get extended (especially the estate tax exemption since the cost is fairly small overall), but it will be very difficult.