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 Hawaii Taxpayers, Businesses, and State Government
- Average Tax Increase: If TCJA expires, Hawaii taxpayers will face an average tax increase of $2,689 per filer.
- Fixed Conformity: States that must affirmatively conform with the federal tax code as of a certain date could specify that their law incorporates any retroactive federal provisions enacted after the date of fixed conformity. Policymakers should at least be conscious of any retroactive provisions when selecting their date of fixed conformity.
- Business Expensing Conformity: Hawaii conforms to federal Section 168(k), which means only 60% expensing for business investments this year and less in future years. State policymakers could adopt 100% full expensing, particularly since the state conforms to the Section 163(j) limit on interest expense and the two provisions were meant to work together.