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 South Carolina Taxpayers, Businesses, and State Government
- Average Tax Increase: If TCJA expires, South Carolina taxpayers will face an average tax increase of $2,319 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.
- Federal Taxable Income Starting Point: States using this starting point automatically adopt any federal tax exclusion, exemption, or deduction. States that use taxable income as a starting point could, to avoid state tax increases on their own residents, consider continuing current policy on the standard deduction or Section 199A, or at least clarifying what happens if there is any temporary lapse or retroactive re-enactment of the federal taxable income definition.
- 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 South Carolina could consider establishing that the standard deduction in their state is the larger of federal law or the inflation-adjusted amount from this year.
- Business Expensing: South Carolina does not adopt full expensing business investments. State policymakers could adopt 100% full expensing regardless of whether federal full expensing is renewed.
- 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 South Carolina (0.7%). State policymakers should communicate to federal counterparts that easing the SALT cap would only benefit other, higher-tax states, and is not a priority.