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 Vermont Taxpayers, Businesses, and State Government
- Average Tax Increase: If TCJA expires, Vermont taxpayers will face an average tax increase of $2,276 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 Net Operating Loss Treatment: Vermont’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.
- 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 Vermont 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: The state does not adopt full expensing for business investments. State policymakers could adopt 100% full expensing regardless of whether federal full expensing is renewed.