With nearly unanimous Republican support, Congress passed, and then-President Donald Trump signed the historic Tax Cuts and Jobs Act (TCJA) in 2017, which helped create economic expansion over the past six years. Taxpayers and businesses nationwide benefited from this landmark legislation that provided financial security. The tax cuts benefited the middle class, and nearly all Americans experienced larger take-home incomes. Further, many companies could provide bonuses, hire additional workers, and increase wages.
Thanks to this law’s passage, businesses invested in Iowans for the long term. Iowa American Water Co. in Dubuque and MidAmerican Energy Company in Des Moines passed along millions to ratepayers. Mississippi River Distilling Co. in Le Claire credited the bill with new jobs it was able to create. In Cushing, Anfinson Farm Store gave its employees a 5-percent pay raise, and in Pella, Geetings, Inc., gave its employees raises and was able to invest in a new fleet of semitrailers. This represents only a tiny portion of how these tax cuts translated into real dollars in the pockets of local businesses, workers, and families.
Sadly, due to slim margins in Congress and procedural limitations, some provisions of this historic tax plan were made temporary and will expire soon. Pro-growth provisions like the full and immediate expensing of capital investments have already begun to phase out, and interest and depreciation deductibility will quickly follow. Furthermore, the income tax rate reductions that benefited most taxpayers – especially the middle class – will be gone.
Congress must make these tax cuts permanent to avoid a potential tax increase on taxpayers and businesses. Tax policy is best when it not only lowers rates but also provides long-term certainty for the economy. Failure to make these tax cuts permanent will result in higher taxes and harm the economy.
At the time, partisan political opponents of Congress and the president, along with a complicit media, decried that this new law benefited only the wealthy – but this was and is false. A majority of taxpayers benefited as a result of the lower rates. In addition, the pro-business provisions of the law allowed businesses to expand, hire more workers, and increase wages.
Congress is considering a compromise over a tax package that may make some portions of the TCJA permanent. The current compromise focuses on making some business provisions permanent. These crucial tax cuts include the deduction for business research and development, bonus depreciation for equipment, and a deduction for interest payments. This deal would expand the child tax credit to garner bipartisan support for the compromise.
Too often, critics of the TCJA are eager to point out how much retaining the tax cuts will “cost” in terms of lost revenue while ignoring the economic growth created by unleashing investment and spending. However, the problem is not with the 2017 law but Congress’s excessive government spending. Since the federal tax law took effect in 2018, tax revenue as a percentage of our total economy has averaged just under 17 percent, which aligns with historical averages. Unfortunately, due to skyrocketing spending, deficits continue to increase and are projected to grow while the national debt has hit $34 trillion.
The debt crisis is caused by out-of-control government spending. The result is rampant inflation, hurting Iowans and their household budgets.
A large part of restoring fiscal sanity is making these tax cuts permanent. Congress is starting with essential steps with the current bipartisan proposal, but there is still much to do. Iowa’s taxpayers deserve true financial certainty by saving the income tax cuts before it’s too late, and families suffer increased taxes, doubling the consequences of high inflation and destroying their savings and earning potential.