Extending the Tax Cuts and Jobs Act of 2017 (TCJA) poses a significant threat to the United States’ financial stability, pushing the nation’s historic debt-to-GDP ratio beyond 120%. For the first time in 236 years of U.S. history, the country owes an unprecedented amount to creditors globally, including financial institutions, China, Japan, and India. The U.S. currently allocates over $1 trillion annually to interest payments alone on its $36 trillion national debt, money crucial for essential government functions.

Politicians have historically justified tax cuts by claiming they spur economic growth, ultimately increasing tax revenue and balancing the budget. However, this premise consistently proves false, and the proposed TCJA extension in 2025 will not change this trend. While tax cuts can temporarily stimulate the economy and stock market, they have never generated sufficient tax revenue to offset their cost or reduce the national debt.

Analyzing the past eight years reveals the TCJA’s impact on tax revenues. Under both the Trump and Biden administrations, the tax system collected an average of just 16.8% of GDP. Projecting this average forward, an extended TCJA would result in an estimated $5.7 trillion in tax collections by 2028, while projected expenditures reach $6.9 trillion. This creates an annual deficit of at least $1.2 trillion, adding an estimated $4.8 trillion to the national debt by 2028, President Trump’s last year in office. Coincidentally, the proposed bill includes a $5 trillion debt ceiling increase, potentially raising the national debt to an astonishing $41.1 trillion, or 125% of the projected GDP, by 2028.

The critical question remains: how does the U.S. break this debt cycle? Neither the President nor Congress has outlined a concrete plan to balance the budget or reduce the national debt. Spending cuts alone, even aggressive measures like Elon Musk’s stated goals for DOGE cuts, offer only a tiny fraction of the necessary savings. Similarly, President Trump’s on-again, off-again tariffs cannot generate sufficient revenue.

Extending the TCJA is not the answer. It fails to generate adequate revenue and, more importantly, distributes the tax burden unfairly. The TCJA disproportionately burdens middle and upper-middle-class Americans, who contribute approximately 90% of all tax revenue. In contrast, corporations contribute only 10%, with a mere 1% of corporations accounting for the vast majority of that share. This means 99% of corporations effectively pay no taxes. Furthermore, individuals contribute 90% of tax revenue from less than 50% of the economy, while corporations contribute only 10% from the other 50%. This contrasts sharply with 1945, when individuals and corporations each contributed around 40% of tax revenue, allowing the U.S. to pay down debt post-WWII. The data clearly shows the TCJA continues a heavily skewed tax burden, favoring corporations and the wealthy, proving neither fair nor effective.

Explore CXO Insider for the latest innovations in Operations, IT, and Finance, featuring valuable insights from top C-Level industry leaders! 

Source: Ceoworld.Biz