Unless Congress acts before January 1, 2026, the expiration of the 2017 Tax Cuts and Jobs Act (TCJA) will trigger widespread tax increases for 80% of Americans, significantly impact state economies, and disrupt state tax structures.
For federal taxes, the expiration of the 2017 TCJA would:
- Halve the federal standard deduction
- Reduce the federal child tax credit
- Reintroduce higher federal tax brackets
- Lower the federal estate tax threshold
- Eliminate key business tax benefits like federal Section 199A and full expensing
Altogether, individual and business taxes would rise by $500 billion annually, reducing U.S. GDP by 1.1% and wages by 0.5%.
TCJA Expiration Consequences for District of Columbia Taxpayers, Businesses, and Government
- Average Tax Increase: If TCJA expires, District of Columbia taxpayers will face an average tax increase of $4,160 per filer.
- Rolling Conformity: The District of Columbia automatically follows the federal tax code, so any federal action (or lack of action) will automatically apply to the District’s tax code. Policymakers should consider preserving elements of the current tax code in case TCJA expires.
- GILTI Inclusion: The federal minimum tax on Global Intangible Low-Tax Income (GILTI) is part of a mechanism of taxes and credits to deter cross-border profit-shifting. The income is not earned domestically and should not be taxed by any state, but the District of Columbia does so. Policymakers should review how their provisions interact with the scheduled change in GILTI rates, whether they would be impacted by a modification or extension of TCJA, and whether the complexity caused by their inclusion of GILTI is justified.
- Business Expensing Conformity: The District of Columbia conforms to federal Section 168(k), which means only 60% expensing for business investments this year and less in future years. Policymakers could adopt 100% full expensing, particularly since the District of Columbia conforms to the Section 163(j) limit on interest expense and the two provisions were meant to work together.