US Election: What’s Next for the Tax Cuts and Jobs Act?

The future of the Tax Cuts and Jobs Act (TCJA), which was enacted in 2017 during President Trump’s administration, is a critical U.S. fiscal policy issue that will be confronted after the 2024 elections.

With the legislation scheduled to expire on December 31, 2025, debates about extending it or allowing it to lapse are heating up. The outcome will significantly affect tax rates, the federal budget, and economic growth.

The TCJA implemented reductions in corporate tax rates, modified individual income tax brackets, and enhanced various deductions, including the Child Tax Credit. However, numerous provisions, especially those impacting individual taxes, are due to end at the close of 2025.

Economists at Wells Fargo recently outlined key scenarios that may arise depending on the electoral results.

If the TCJA fully expires, a tax increase would take effect in 2026, potentially tightening fiscal policies. However, economists believe that this alone would not likely trigger a recession in the U.S. The effect on economic growth could be modest, with GDP likely declining by a few tenths of a percentage point in 2026 and 2027.

The economists noted, “If the TCJA were to expire as scheduled, it likely would dent economic growth in the near-term—though not enough to push the U.S. economy into a recession.”

Conversely, extending the TCJA in its entirety would impose a significant fiscal burden, adding approximately $4.6 trillion to the federal deficit over the next decade. Wells Fargo anticipates that this could elevate annual budget deficits to 7-8% of GDP, a level of borrowing seldom seen except during wartime or economic downturns. However, they suggest that extending the TCJA may not drastically change economic growth predictions: “Extending the TCJA would avert fiscal tightening rather than expand fiscal accommodation,” they explained.

Looking forward, Wells Fargo evaluates potential policy shifts based on the electoral outcomes. Generally, Republicans are inclined to extend or potentially expand the TCJA, while Democrats are more likely to support a partial extension.

Vice President Harris has expressed support for continuing the tax cuts for individuals earning below $400,000 annually but believes they should expire for higher earners. The economic impact from such a partial extension is expected to be relatively minor, with GDP growth anticipated to slow by about a tenth of a percentage point in 2026.

Ultimately, the fate of the TCJA hinges on the results of the 2024 elections. A Republican victory could lead to a full extension or additional tax reductions, whereas a Democratic win might result in a more restricted continuation of the law.

Regardless of the outcome, Wells Fargo emphasizes that the macroeconomic impacts of any changes to the TCJA are unlikely to be felt until 2026, providing lawmakers with ample time to negotiate an appropriate resolution.