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 Michigan Taxpayers, Businesses, and State Government
- Average Tax Increase: If TCJA expires, Michigan taxpayers will face an average tax increase of $2,151 per filer.
- Rolling Conformity: Michigan automatically follows the federal tax code, so any federal action (or lack of action) will automatically apply to the state tax code. Policymakers should consider preserving elements of the current tax code in case TCJA expires.
- Business Net Operating Loss Treatment: Michigan’s NOL policies are less generous than the federal government and impose compliance costs due to lack of synchronization with the federal code and are uncompetitive with most other states. Policymakers in these states should reconsider their NOL treatment.
- Business Expensing Conformity: Michigan 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.
- Monitor Proposals on Tips, Overtime, Social Security, and Auto Loans: Depending on how these proposals are structured in any federal enactment, they could automatically flow through to the state tax system.