Key parts of the 2017 Tax Cuts and Jobs Act are set to expire at the end of 2025 but action appears unlikely until after the election.
2022, 19 percent of small businesses said they may have to shut down because of the sudden tax increase, according to data from the Small Business & Entrepreneurship Council. Although that projection is alarming, the hardships created by the end of immediate R&D expensing would be modest compared to the effects if key components of the 2017 Tax Cuts and Jobs Act (TCJA) are allowed to expire at the end of 2025.
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With little movement in Congress to extend the critical tax cuts, businesses are now bracing for the possibility of a major tax increase beginning in 2026. Unless they are extended or made permanent, the TCJA provisions that will expire at the end of next year include:
• The 20 percent deduction for qualifying pass-through business income
• Estate and death tax relief • Lower individual income tax rates and adjusted tax brackets
• Expanded health insurance premium tax credits • The increase in the standard deduction, elimination of the personal exemption and doubling of the child tax credit.
The loss of the 20 percent deduction for pass-through business income would be a struggle for many businesses, notes Sarah Hoyt Corrigan, tax counsel, tax policy at the U.S. Chamber of Commerce. “TCJA helped small businesses by creating a more competitive tax code, which allows local
fter immediate expensing for research and development ended at the beginning of
economies to grow and prosper, and workers across the country to benefit from higher paychecks and more job opportunities,” she said. “The tax savings from the 20 percent deduction allow these businesses to invest more in growing their business as well as contend with other challenges such as high inflation and interest rates.” A 2024 study from the National
Bureau of Economic Research found that companies benefiting from the 2017 tax cuts increased their domestic investment by 20 percent in the two years that followed the TCJA’s passage. If that deduction were to end, that investment would likely dry up as companies reduce spending to offset the tax increase. “These impacts will be compounded by the simultaneous expiration of a dozen other temporary tax provisions, including the expanded premium tax credits for individuals purchasing health insurance, the new markets tax credit and the work opportunity tax, among others,” Hoyt Corrigan warns.
Higher tax rates on business profits would negatively affect the economy in at least three distinct ways, she continues. First, they would reduce the return on investment to business owners or shareholders. Second, higher taxes consume resources that would have otherwise gone toward increasing employee wages. Finally, companies based in the United States would find themselves at a global disadvantage compared to competitors located in lower-tax jurisdictions. “As a result, companies are incentivized to relocate their headquarters and operations in lower-tax jurisdictions,” Hoyt Corrigan
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A U.S. Chamber poll published in June 2024 found that 80 percent of voters believe higher taxes will lead to higher prices, and 67 percent said that taxes paid by both families and businesses were already too high.
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