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Some Tax Provisions Are Expiring in 2025 — Here’s What Experts Think About Them

Last Updated November 7, 2024

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The Tax Cuts and Jobs Act of 2017 (TCJA) lowered taxes for millions of households and made filing simpler for many — all while making the country’s fiscal outlook worse. At the end of December 2025, the provisions in the subtitle on Individual Tax Reform of the TCJA are scheduled to expire, teeing up an important debate on tax and fiscal policy. With such high stakes, policy experts and economists have started to put forward proposals and develop some agreement about what should be kept, what should be changed, and what should be discarded from the TCJA. The most expensive element of the expiring provisions involve the lower marginal rates imposed in 2017; a variety of opinions exist about how to address those rates. However, the discussion below indicates that some agreement exists that simplified deductions and exemptions were effective, while provisions related to pass-through businesses were not.

Tax Reform in 2025

The expiration of the individual tax provisions of the TCJA presents a crossroads for the country’s fiscal trajectory. The Congressional Budget Office (CBO) and the Joint Committee on Taxation estimated that the TCJA increased deficits by $1.6 trillion over its first 10 years (2018–2027); extending only the expiring provisions of the law would have an impact about two-and-a-half times larger, increasing deficits by $4.0 trillion over the 2025–2034 budget period (excluding associated interest costs).

There are countless combinations of tax policies that lawmakers could pursue in 2025, and they could choose to limit themselves to only the expiring provisions of the TCJA or open up the entire tax code for reform. While the provisions noted below may suggest similar approaches to certain expiring provisions, those policies are part of a larger package that each expert has put forth — including some that raise revenues and others that decrease revenues but offer other benefits, such as simplicity. That said, all the experts have adopted the same goal for tax reform in 2025: improving the tax code to promote economic growth and fiscal sustainability.

The Standard Deduction and Itemized Deductions

Tax deductions reduce a taxpayer’s taxable income, thereby reducing tax liabilities. When filing individual taxes, taxpayers can choose to either take the standard deduction or itemize their deductions. The Internal Revenue Service (IRS) recommends that taxpayers itemize deductions only when the total amount of allowable itemized deductions is greater than the standard deduction. Most filers choose to take the standard deduction because it is simpler and more valuable for them than itemizing.

The TCJA magnified this trend by nearly doubling the value of the standard deduction, from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for joint filers. At the same time, it lowered the value of some of the most popular itemized deductions: The TCJA capped the deduction for state and local taxes (SALT) at $10,000 (there was no limit previously) and reduced the application of the mortgage interest deduction from the first $1,000,000 of a mortgage to the first $750,000. Those changes reduced the incentive to itemize for many taxpayers, and in the first year of the TCJA, only 11 percent of returns included itemized deductions, about a third as many compared to before the law was in effect.

Many policy organizations contend that raising the standard deduction simplified the tax code and increased progressivity. The American Enterprise Institute (AEI) found the shift away from itemization “improved simplicity for roughly 28 million taxpayers.” Similarly, the Progressive Policy Institute stated that the increased standard deduction helped to distribute tax benefits more evenly across incomes as “those with high incomes are more likely to have expenses that both qualify for itemized deductions and are large enough to make itemizing more beneficial than taking the standard deduction.” CBO estimates that a full extension of the expiring provisions related to the standard deduction and itemized deductions would be nearly budget neutral.

The Personal Exemption

The personal exemption works in a similar manner as the standard deduction, except it is calculated on a per-person basis rather than a per-household basis. Prior to the enactment of the TCJA, taxpayers could claim a $4,050 personal exemption for each person listed on their tax return, meaning a married couple filing jointly with two children could claim personal exemptions totaling $16,200. Also in contrast to the standard deduction, the personal exemption phased out for high-income taxpayers (in 2017, phase-out began at $261,500 for single filers and $313,800 for those filing jointly). The TCJA reduced the personal exemption to $0, effectively eliminating the provision, but the increases in the standard deduction and child tax credit (CTC; described below) were expanded as a replacement.

For most families, the increase in the standard deduction and the CTC make up for the loss of the personal exemption. For the federal government, extending all four of those provisions (increased standard deduction, limited itemized deductions, eliminated personal deduction, and expanded CTC) would have a positive effect on the budget, reducing deficits by $975 billion over 10 years according to CBO.

Many policy organizations propose permanently repealing personal exemptions in favor of the expanded standard deduction and child tax credit. The Tax Foundation found that “a larger standard deduction and child tax credit in lieu of personal and dependent exemptions” helped simplify the filing process for many taxpayers. Experts with the Hamilton Project state that the combination of the greater standard deduction, expanded CTC, and repealed personal exemptions are “approximately revenue neutral and distributionally neutral.”

The Child Tax Credit

In 1997, lawmakers introduced the CTC to decrease the tax burden for households with children. Before the TCJA, the maximum credit was $1,000 per child. The TCJA doubled the maximum benefit to $2,000 per child and increased the phase-out threshold from $75,000 of income to $200,000 for single filers and from $110,000 to $400,000 for joint filers. The TCJA also enhanced the refundable portion of the credit (the amount that can be received in excess of tax liability). Extending the changes would increase deficits by $750 billion over the 2025–2034 period.

Many experts agree that the CTC has been effective in supporting families and reducing child poverty. AEI found that changes to the standard deduction, personal exemption, and CTC make the code “more family friendly.” Some experts laud the refundable portion of the CTC for significantly reducing child poverty. PPI calls for a fully refundable, inflation-adjusted CTC in their proposal. The proposal from the Hamilton Project also calls for the credit to be made fully refundable because they “believe it is imperative that any future tax package build on the success of the CTC.” While many policy organizations support a CTC that is larger than the pre-TCJA credit, there is still debate about some details regarding implementation.

Alternative Minimum Tax

Congress introduced the alternative minimum tax (AMT) in 1969 to ensure that taxpayers with “substantial economic income” pay some minimum amount of taxes. The AMT requires taxpayers with income above an exemption threshold to compute their taxes twice: first with ordinary tax rules, then with certain tax preferences reduced or excluded and a lower top marginal rate of 28 percent. Taxpayers are then required to pay the higher of the two calculations. The AMT exemption is adjusted for inflation and phases out for higher-income filers. As a result of changes implemented by the TCJA, the number of affected filers was reduced by 96 percent. Extending the AMT modifications would increase deficits by $1.4 trillion from 2025–2034.

For many experts, the revenue generated by the AMT is not worth the burden it places on taxpayers. Tax Foundation experts note that “past IRS estimates indicate an average compliance burden of more than 12 hours per taxpayer subject to the AMT,” while PPI stated that the AMT makes “tax compliance even more cumbersome.” Many proposals suggest extending or further limiting the AMT, which along with other reforms like the increased standard deduction and limits to itemized deductions, should simplify tax filing while maintaining fairness.

Deduction for Pass-Through Income

The TCJA decreased the corporate tax rate from a top marginal rate of 35 percent to a flat 21 percent. To prevent a significant tax advantage for C corporations (an independent legal entity owned by its shareholders) over pass-through businesses (business for which profits are “passed through” to owners and taxed via individual income taxes), lawmakers also enacted a 20 percent deduction for certain pass-through business income. Many find that the deduction complicates the tax code while increasing the deficit. The Joint Committee on Taxation estimates that the deduction has resulted in $274 billion of revenue loss from 2018 to 2023; extending the deduction would raise deficits by $680 billion from 2025–2034.

According to the Tax Foundation, rather than making the tax burden across businesses more even, “estimates of effective tax rates by business type show that [pass-through] businesses face lower marginal tax rates than corporate businesses.” A report from the Hamilton Project states that “of all the TCJA extension policy calls, one of the easiest is ending the pass-through business deduction.”

Conclusion

Next year, trillions of dollars are at stake as lawmakers consider tax policy. A menu of policy options exist to address the expiring provisions of the TCJA and reform the revenue side of the federal budget to help address growing deficits. Some agreement exists among policy organizations about how lawmakers should respond to the expiration of some key provisions of the law, but extending the full set of expiring provisions would be costly. As policymakers begin to debate changes to the tax code, they should focus on a package of reforms that will address the country’s growing fiscal challenges while also making taxation simpler, fairer, and supportive of widely shared economic growth.

 

Photo by Samuel Corum/Getty Images

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