Washington, D.C. sets up a game of chicken between Iowa taxpayers and the sunset of the Tax Cuts and Jobs Act.
The Tax Cuts and Jobs Act of 2017 (TCJA) delivered significant tax relief to Iowans, from individuals to small business owners. However, key provisions of the TCJA are set to expire in 2025, leading to tax increases across Iowa, and the nation, unless Congress acts to renew or make these provisions permanent. Now, thanks to our friends at Tax Foundation, we can even see just how much the end of the Tax Cuts and Jobs Act may cost taxpayers in every corner of our state.
The TCJA introduced several crucial reforms, including lower individual and corporate income tax rates, a higher standard deduction, and a 20 percent deduction on qualified business income for pass-through businesses. Yet, because of small conservative majorities in Congress in 2017, many benefits for individuals and small businesses were temporary and are scheduled to sunset in 2025. If allowed to expire, individual income tax rates will revert to pre-2017 levels, the standard deduction will shrink, and the 20 percent deduction for qualified business income will disappear, resulting in higher taxes for Iowans.
The interactive map below illustrates Tax Foundation’s estimate of “the average change (increase) in taxes paid per taxpayer under TCJA expiration relative to current policy.” Hover or click on a county for more information.
Iowans continue to struggle with high inflation and economic uncertainty, despite what they have been told to believe about Bidenomics. The expiration of these tax cuts would compound these challenges, affecting nearly every household and small business in the state. Even though Tax Foundation’s estimates are just that, their calculations are certainly instructive about how and where the increased costs would be borne. Decatur County ($1,508) and Webster County ($1,555) filers are projected to receive the smallest reduction to their after-tax incomes, while Dallas County ($3,106) and Scott County ($2,619) filers would be hit the hardest.
The phasing out of pro-growth measures has already begun, with provisions like the full and immediate expensing of capital investments set to disappear, and limitations on interest and depreciation deductions soon to follow. The expiration of income tax rate reductions will especially impact middle-class taxpayers, reversing gains they have enjoyed since the TCJA was enacted.
To avoid these tax increases, Congress must make these tax cuts permanent. Stable, long-term tax policy fosters economic growth by reducing uncertainty and encouraging investment. Estimates of the increased tax bills from the expiration of TCJA peg the amount to be roughly $4 trillion nationwide over the next decade; if Congress fails to act, taxpayers across Iowa will face significant financial strain. This additional strain will stall economic growth and harm the broader economy.
Critics have claimed the TCJA primarily benefited the wealthy, but this is not the case. A majority of taxpayers saw reduced rates, and businesses benefited from provisions that enabled expansion, hiring, and wage increases. As 2025 approaches, Iowa taxpayers are increasingly worried about a potential tax hike. The need for Congress to renew or make the TCJA permanent is critical to prevent widespread tax increases. The economic stability of Iowa, and indeed the nation, depends on it.
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