Maintaining and Expanding Affordable Tax Rates for American Economic Growth and Wealth
The Council of Economic Advisers (CEA) has conducted an analysis that sheds light on the potential long-term effects of extending the Tax Cuts and Jobs Act (TCJA) proposed by President Trump. The study, published in April 2025, suggests that the extension of the TCJA could avert a $4 trillion tax hike and bring about a series of significant economic changes.
The tax cuts studied in the paper would have short-run effects over the next four years, with estimates indicating a potential increase of 4.2 million long-term full-time equivalent (FTE) jobs and a 4.9 to 7.5 percent higher long-term GDP (in real levels). Wages per worker could also see a significant boost, with projections suggesting a $6,100 to $11,600 increase for a typical worker.
The paper focuses on permanent additional rate cuts for businesses, including a 15 percent corporate tax rate for domestic manufacturing, equivalent reductions for pass-through manufacturing activities, a lower tax rate for foreign-derived intangible income (FDII), and an increase in the section 199A deduction from 20 percent to 23 percent.
Moreover, the analysis suggests that extending the TCJA would continue the legacy of President Trump's first term, during which Americans experienced historic prosperity with record high income gains, record low poverty, and low inflation. The study also finds that $100+ billion of long-term investment would support workforce growth in poor communities, with an estimated 1+ million long-term jobs being created in these areas.
However, the long-term economic effects of these proposed tax cuts are not without drawbacks. Proponents argue that these tax provisions will stimulate investment by businesses due to permanent full expensing and extended TCJA benefits. This would encourage capital spending and innovation, boosting productivity and economic growth.
Yet, despite projected growth benefits, these permanent tax cuts come at the cost of substantially increased federal deficits. Estimates range around $4.3 to $6 trillion added to the national debt over a decade, largely because corporate and wealthy taxpayer tax breaks are extended indefinitely without offsetting revenue sources. This debt increase raises concerns about fiscal sustainability and economic stability.
The tax cuts also tend to benefit higher-income households disproportionately, with analyses showing that the wealthiest 20% and especially the top 5% receive the majority of the tax benefits, while the poorest 20% receive a small fraction. This contributes to increased income inequality, as lower-income families may even experience reductions in some benefits and public support programs.
Furthermore, the elimination of federal income taxes on Social Security benefits, included in related tax provisions, reduces program revenues by $1.05 to $1.45 trillion over ten years. This accelerates Social Security’s projected insolvency from 2034 to as early as 2032, threatening benefit reductions unless new funding solutions are enacted.
In addition, some sectors like fossil fuels and defense may benefit in the short term, but the reduction of clean energy credits and trade tensions from tariffs could undermine other sectors and raise inflationary pressures, potentially dampening long-term competitiveness.
In sum, while permanent tax cuts under the TCJA extension and full expensing can stimulate investment and job creation, the long-term economic effects include a larger fiscal deficit, risks to entitlement programs like Social Security, regressive income distribution, and sectoral trade-offs that could undermine broader economic stability and competitiveness.
[1] Committee for a Responsible Federal Budget. (2021). The One Big Beautiful Bill Act: Fiscal Effects and Policy Options. [2] Tax Policy Center. (2021). Analysis of the Trump Administration's Tax Plan. [3] Joint Committee on Taxation. (2021). Estimated Revenue Effects of the Trump Administration's Tax Plan. [4] Social Security Administration. (2021). Social Security's Long-Range Financial Outlook.
Businesses stand to benefit from permanent additional rate cuts proposed in the Tax Cuts and Jobs Act (TCJA) extension, such as a 15 percent corporate tax rate for domestic manufacturing, lower tax rates for foreign-derived intangible income (FDII), and an increase in the section 199A deduction.
Finance concerns arise with these tax cuts, as they are projected to significantly increase the national debt by $4.3 to $6 trillion over a decade due to extended tax breaks for corporations and wealthy taxpayers, raising questions about fiscal sustainability and economic stability.
