Unless Congress acts soon, taxpayers across the country will face an automatic tax increase next year. This is because lawmakers have not stopped the sunset of major federal tax relief enacted seven years ago. The Federal Tax Cuts and Job Act (TCJA) is a law that was passed in December 2017 by Congress, aimed at reducing tax rates on individual and business income, as well as boosting incentives for investment.
Despite incredibly positive economic outcomes from its enactment, most of the tax law is set to expire at the end of 2025. If not renewed, taxes are projected to increase by roughly $400 billion, significantly impacting families and businesses in the Mountain States. For example, the average tax increase in Idaho is expected to be $2,554, in Montana $2,599, in Washington $4,429 and in Wyoming $4,312.
A major highlight of this tax cut law is decreasing the top income tax bracket rate from 39.6% to 37%. The Tax Policy Center estimated that 80% of taxpayers received a tax cut, 15% experienced no change, and 5% paid more in 2018 than in 2017 when it was enacted. They also estimated that the average taxpayer received a $2,100 tax cut.
Along with widening the tax brackets, the TCJA also reduced the corporate tax rate, doubled the child tax credit to $2,000, doubled the standard deduction, and zeroed out dependent and personal exemptions. In April and July of 2024, Congress attempted to pass bipartisan legislation that would extend parts of the TCJA including corporate incentives and keeping the child tax credit at $2,000, but it stalled and eventually failed in the Senate. Senate Republicans argued that a better solution would come up in about a year, closer to the expiration of the TCJA.
This pioneering law changed the corporate tax rate from one of the steepest in the world at 38.91% to a more moderate 25.77%. Data shows that this tax cut does not just benefit corporations, but the average laborer benefits also. Corporations generally use extra funds for capital investment, making workers more productive and leading to raises. It also incentives corporations to do business in the U.S., and not resort to cheap labor in other countries. A study by economists from the National Bureau of Economic Research and the Treasury Department found that the TCJA corporate reforms substantially raised U.S. capital investment and boosted economic growth.
The Tax Foundation also found, “The current consensus among economists and researchers is that the corporate income tax restricts capital formation, and seriously hampers productivity growth, employment levels, wages, and economic output.”
It’s not just corporations that see positive benefits, but small business owners from all over the country are urging Congress to renew the TCJA as well. Mother Earth Brewing Company out of Nampa, Idaho, was able to almost double their production, buy new equipment, and hire new employees. They credited this to the enacting of the TCJA. Melaleuca, based out of Idaho Falls, was able to provide a $100 bonus to its 2,000 employees for every year they’ve worked at the company.
CEO Frank Vandersloot commented, “We’re going to be able to have quite a few substantial dollars after taxes. I suspect we’re one of the largest taxpayers in the state, so we’re going to have some more dollars to spread around. That money should go to the people who built the company.”
With this important tax cut expiring, personal income tax rates will revert to their previous higher levels. It is estimated by the Tax Foundation that a $2,554 tax increase per person will occur in Idaho after the TCJA expires. There are also expected to be 4,260 long-run jobs forgone.
Montana is expected to see a $2,599 tax increase per filer, and 2,628 jobs forgone if the TCJA expires. On average, Washington would see a $4,429 tax increase if the TCJA expires in 2026. There would also be 27,810 long-run jobs forgone. Wyoming is expected to have the second highest tax increase per filer in the country if TCJA were to expire. It is estimated to be a $4,312 increase per tax person, with a projected 1,900 jobs forgone.
The research shows taxpayers cannot afford to have the TCJA expire. For the Mountain States, the average expected tax increase is $3,474 per taxpayer. With Americans already feeling the effects of rampant inflation, this would put the average working-class family in a financially impossible spot.
Congress should continue to work on reducing the tax burden for employers and families. Hopefully, the House and Senate will soon agree to maintain this important tax relief that benefits all.
