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 Maine Taxpayers, Businesses, and State Government
- Average Tax Increase: If TCJA expires, Maine taxpayers will face an average tax increase of $2,226 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.
- Generous Standard Deduction: An expiration of the expanded federal standard deduction would automatically sharply reduce the state standard deduction, which would mean a tax increase for most taxpayers. To avoid this tax increase if Congress does not act, policymakers in Maine could consider establishing that the standard deduction in their state is the larger of federal law or the inflation-adjusted amount from this year.
- 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 Maine 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: Maine 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.
- SALT Cap Easing Would Be Inequitable: Most of the tax cut benefit from easing the SALT cap would accrue to California (34%) and New York (17%), not Maine (0.2%). State policymakers should communicate to federal counterparts that easing the SALT cap would only benefit other, higher-tax states, and is not a priority.