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 Tennessee Taxpayers, Businesses, and State Government
- Average Tax Increase: If TCJA expires, Tennessee taxpayers will face an average tax increase of $2,660 per filer.
Rolling Conformity: Tennessee 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: Tennessee’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: Tennessee does not adopt full expensing business investments. State policymakers could adopt 100% full expensing regardless of whether federal full expensing is renewed.
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.
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 Tennessee (0.3%). State policymakers should communicate to federal counterparts that easing the SALT cap would only benefit other, higher-tax states, and is not a priority.