Senate Finance Committee Chairman Ron Wyden, D-Ore., recently questioned IRS Commissioner Charles Rettig at a Senate Finance Committee hearing, sparking a debate among lawmakers over the future of tax policies that could have far-reaching implications for millions of families and small businesses across the country.
Trillions of dollars in tax breaks are set to expire after 2025, as a result of the Tax Cuts and Jobs Act (TCJA) enacted by former President Donald Trump in 2017. The TCJA introduced significant tax changes, including temporary provisions that are scheduled to sunset after 2025 unless Congress takes action. Additionally, the law permanently reduced the top corporate tax rate to 21%.
Some of the key provisions of the TCJA that are set to expire after 2025 include lower federal income tax brackets, larger standard deductions, an enhanced child tax credit, higher gift and estate tax exemptions, and a 20% tax deduction for pass-through businesses, among others.
Senate Finance Committee Chairman Ron Wyden emphasized the importance of addressing these expiring provisions, stating that it will be a critical moment for the federal budget and for America’s middle class. Without action from Congress, more than 60% of tax filers could face increased taxes, according to estimates from the Tax Foundation.
The uncertainty surrounding the future of these tax provisions has led to debates among lawmakers and organizations about which issues to prioritize before the 2025 deadline. One of the key areas of contention is the qualified business income deduction (QBI), which provides a tax break of up to 20% for eligible revenue generated by pass-through businesses.
Jeff Brabant, vice president of federal government relations for the National Federation of Independent Business, stressed the importance of making the QBI deduction permanent, citing its crucial role in supporting small business owners. He highlighted the challenges faced by the small business economy, including the impact of the pandemic, inflation, and a tight labor market.
Another area of debate is the child tax credit expansion, which was temporarily increased under the American Rescue Plan in 2021. Indivar Dutta-Gupta, a visiting fellow at Georgetown University and tax fellow at Roosevelt Institute, argued for the expansion of the child tax credit, noting its significant impact on working families’ after-tax income. The expansion led to a historic low in the child poverty rate in 2021, but concerns arose when childhood poverty rates surged after pandemic relief measures expired.
As lawmakers navigate these complex tax issues, they must also grapple with growing concerns over the federal budget deficit. The U.S. government has already spent over $1 trillion on interest payments for its $35.3 trillion national debt this year, highlighting the urgency of addressing fiscal challenges.
Kent Smetters, a professor at the University of Pennsylvania’s Wharton School, compared the current situation to arguing over furniture while the house is burning down, underscoring the need for policymakers to prioritize long-term fiscal sustainability.
In light of these challenges, it is crucial for lawmakers to engage in meaningful discussions and prioritize solutions that address the needs of American families and businesses. As the debate over tax policies continues, the decisions made in the coming years will have a lasting impact on the economic well-being of the nation.
