Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
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Expiring Provisions of P.L. 115-97 (the Tax
Cuts and Jobs Act): Economic Issues
Updated March 3, 2025
Congressional Research Service
https://crsreports.congress.gov
R48286
SUMMARY
Expiring Provisions of P.L. 115-97 (the Tax Cuts
and Jobs Act): Economic Issues
Most provisions affecting the individual income tax in the 2017 tax law (P.L. 115-97), commonly
called the Tax Cuts and Jobs Act (TCJA), are scheduled to expire in 2025. These expiring
provisions include tax rate reductions as well as changes to the standard deduction, child credit,
personal exemptions, and itemized deductions; the deduction for pass-through businesses; the
alternative minimum tax; and a number of smaller provisions. The increased exemption for the
estate and gift tax under the TCJA is also scheduled to expire in 2025. Additionally, some
business and corporate provisions are scheduled to expire or be phased out: expensing for
equipment and structures with a recovery period no greater than 20 years, lower rates for certain
international provisions, and a number of smaller provisions.
In addition to the expiring provisions of the TCJA, Congress might also consider reinstatement of
expensing for research and development and reinstatement of a larger base for the 30% limit on
interest deduction. The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024)
would reinstate these provisions for 2022 through 2025.
R48286
March 3, 2025
Jane G. Gravelle,
Coordinator
Senior Specialist in
Economic Policy
Anthony A. Cilluffo
Analyst in Public Finance
Mark P. Keightley
Specialist in Economics
Donald J. Marples
Specialist in Public Finance
Brendan McDermott
The Joint Committee on Taxation (JCT) estimates that extending the expiring individual income
Analyst in Public Finance
tax provisions would reduce federal tax collections by $3.3 trillion over the 10-year budget
window, FY2025-FY2034. The committee estimates that extending the higher estate tax
exemptions would cost $167 billion, and extending the business provisions would cost $551
billion. Overall, JCT forecasts that extending these provisions would cost $4 trillion. In most
years, the revenue loss would be between 1.2% and 1.4% of gross domestic product (GDP). More than half of the estimated
cost is from the individual rate cuts. Another source estimated that reinstating expensing for research and development and
switching back to earnings (income) before interest, taxes, depreciation, amortization, or depletion (EBITDA) as the basis for
the interest deduction limit would cost an additional $249 billion over 10 years.
Distributional analysis generally indicates the extensions would favor higher-income individuals relative to lower-income
individuals, measured as the percentage change in after-tax income. A large part of this effect is from the individual rate cuts
and the limitations on the individual alternative minimum tax.
Overall estimates of the economic effects of extending TCJA provisions vary across projections. The Budget Lab at Yale
projects that GDP would rise initially, with a peak GDP increase of 0.4% in 2028, but would eventually fall relative to a
current-policy baseline. The Penn Wharton Budget Model projects that GDP would increase by 0.3% before declining by
0.2% in 2034. The Tax Foundation projects a long-run steady-state effect of 1.1%. The latter two models do not account for
the effects of crowding out of investment by increased deficits. The Congressional Budget Office (CBO) projects that the tax
cuts’ expiration will cause a temporary reduction in GDP, followed by an eventual increase. This pattern is similar to the
Budget Lab’s projection for the current-policy baseline in which the tax cuts expire as scheduled. The JCT’s estimates differ
depending on the model used, ranging from 0.2% to 0.7% over the budget horizon.
This report explains the TCJA provisions that are scheduled to expire and discusses how extending them might affect federal
revenues, the distribution of after-tax income, and economic activity.
Congressional Research Service
Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
Contents
Revenue Effects ............................................................................................................................... 1
Distributional Effects....................................................................................................................... 2
Economic Effects............................................................................................................................. 3
Individual Tax Reform..................................................................................................................... 4
Tax Rate Reform ....................................................................................................................... 4
Pass-Through Deduction ........................................................................................................... 5
Limitation on Losses for Noncorporate Taxpayers (Expires in 2028) ...................................... 6
Standard Deduction, Child Credit, Personal Exemption ........................................................... 6
Standard Deduction............................................................................................................. 7
Child Credit and Credit for Other Dependents ................................................................... 7
Repeal of Personal Exemptions .......................................................................................... 8
Changes in Itemized Deductions ............................................................................................... 8
Charitable Contributions Deduction ................................................................................... 9
State and Local Tax (SALT) Deduction Cap .................................................................... 10
Mortgage Interest Deduction ............................................................................................ 10
Personal Casualty Loss Deduction.................................................................................... 10
Itemized Deduction for Miscellaneous Expenses .............................................................. 11
Overall Limitation on Itemized Deductions....................................................................... 11
Other Individual Provisions ..................................................................................................... 11
ABLE Account Contribution Limit.................................................................................... 11
529 to ABLE Account Rollover ........................................................................................ 12
Combat Zone Tax Exclusion ............................................................................................. 12
Discharged Student Loans ................................................................................................ 12
Bicycle Commuter Reimbursement .................................................................................. 13
Moving Reimbursements Exclusion ................................................................................. 13
Moving Expenses Deduction ............................................................................................ 13
Wagering Losses Deduction.............................................................................................. 13
Estate and Gift Tax ........................................................................................................................ 13
Individual Alternative Minimum Tax ............................................................................................ 14
Business Provisions ....................................................................................................................... 15
Expensing of Equipment (Completes Phaseout in 2026) ........................................................ 15
Citrus Plants Lost by Casualty (Expires in 2026) ................................................................... 16
Amortization of Research Expenditures ................................................................................. 17
Deduction for Interest Paid ..................................................................................................... 18
Deductions for Employer Meals ............................................................................................. 19
Employer Credit for Paid Family and Medical Leave ................................................................... 19
Qualified Opportunity Zones (Expires in 2026) ............................................................................ 20
International Provisions ................................................................................................................. 20
Lower Tax Rate on Global Intangible Low-Taxed Income (GILTI) ....................................... 21
Lower Deduction for Foreign-Derived Intangible Income (FDII) .......................................... 21
Discussion ............................................................................................................................... 21
Increase Rates for the Base Erosion and Anti-Abuse Tax (BEAT) ......................................... 22
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
Tables
Table 1. Revenue Costs of Extending the TCJA: Major Provisions (Billions of Dollars) .............. 2
Table 2. Estimates of Percentage Changes in After-Income from Extending the TCJA ................. 2
Contacts
Author Information........................................................................................................................ 23
Congressional Research Service
Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
his report provides a summary and analysis of the expiring provisions of the 2017 tax law
(P.L. 115-97), commonly called the Tax Cuts and Jobs Act (TCJA). These changes are
generally scheduled to expire at the end of 2025. These expiring provisions include tax
rate reductions as well as changes to the standard deduction, child credit, personal exemptions,
and itemized deductions; the deduction for pass-through businesses; the alternative minimum tax;
and a number of smaller provisions. The increased exemption for the estate and gift tax under the
TCJA is also scheduled to expire in 2025. Additionally, some business and corporate provisions
are also scheduled to expire or be phased out: expensing for equipment and structures with a
recovery period no greater than 20 years, lower rates for certain international provisions, and a
number of smaller provisions.
T
Congress has also considered legislation to temporarily reinstate two business tax provisions that
the TCJA permanently changed. The Tax Relief for American Families and Workers Act of 2024
(H.R. 7024) would (1) reinstate expensing for research and development; and (2) provide a larger
base for the limit on interest deductions by reinstating earnings (income) before interest, taxes,
depreciation, amortization, or depletion (EBITDA) as the basis for the 30% limit on interest
deducted as a share of income for 2022 through 2025. This report discusses those changes and the
potential effects of reinstating prior-law provisions.
Revenue Effects
The Joint Committee on Taxation (JCT) reported its estimates of the revenue effects of extending
TCJA provisions in the Congressional Budget Office’s (CBO’s) May 2024 report on Budget
Outcomes Under Alternative Assumptions About Spending and Revenues.1 The committee
estimated that extending the expiring individual income tax provisions (including the alternative
minimum tax) would reduce federal tax collections by $3.3 trillion over the 10-year budget
window, FY2025-FY2034, extending the higher estate tax exemptions would cost $167 billion,
and extending the business provisions would cost $551 billion. Further, it estimated that
extending the employer credit for family and medical leave would cost $4.6 billion, and
extending the exclusion from tax on the discharge of certain student debt would cost $7.3 billion.
Thus, JCT projected that the overall cost of extending the expiring TCJA provisions would be $4
trillion. In most years, the projected revenue loss is between 1.2% to 1.4% of GDP. Another
source estimated that reinstating expensing for research and development and switching back to
EBITDA as the basis for the interest deduction limit would cost an additional $249 billion over 10
years.2
The projected revenue effect of extending each provision is noted in the discussion of that
provision; estimates for the major provisions are reported in Table 1. A negative value indicates a
revenue increase.
1 The detailed estimates are in the supplemental data accompanying Congressional Budget Office (CBO), Budgetary
Outcomes Under Alternative Assumptions About Spending and Revenues, May 8, 2024, https://www.cbo.gov/
publication/60114#data.
2 Penn-Wharton Budget Model, The Budgetary and Economic Effects of Permanently Extending the 2017 Tax Cuts and
Jobs Acts’ Expiring Provisions, May 22, 2024, https://budgetmodel.wharton.upenn.edu/issues/2024/5/22/effects-ofpermanently-extending-tcja-expiring-provisions#:~:text=We%20estimate%20that%20permanently%20extending,
would%20increase%20by%2016%20percent.
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
Table 1. Revenue Costs of Extending the TCJA: Major Provisions (Billions of Dollars)
Provision
FY2025-FY2029
FY2025-FY2034
Reduced Individual Tax Rates
$821.8
$2,158.7
Increase and Modification of Child and Dependent Credit
$297.2
$735.3
Increased Alternative Minimum Tax Exemption
$466.2
$1,357.1
Increased Standard Deduction
$471.6
$1,251.0
Changes in Itemized Deductions
-$454.8
-$1,244.3
Repeal of Personal Exemption
-$668.3
-$1,717.5
Pass-Through Business Deduction
$263.3
$684.2
Increased Estate and Gift Exemption
$55.2
$166.9
Restore Expensing for Investment
$272.9
$378.5
International Provisions
$55.4
$141.1
Source: CBO, Budgetary Outcomes Under Alternative Assumptions About Spending and Revenues, May 8, 2024,
https://www.cbo.gov/publication/60114#data.
Note: The revenue cost depends on the order of estimation due to interactions between the provisions.
Distributional Effects
Several organizations have provided distributional analysis of extending the TCJA provisions that
are scheduled to expire. Their estimates of the percentage changes in after-tax income are shown
in Table 2. Although there are different approaches to measuring distribution, the percentage
changes in after-tax income measure the relative redistribution of income.
Table 2. Estimates of Percentage Changes in After-Income from Extending the TCJA
Urban-Brookings
Tax Policy
Center—2027
Penn Wharton
Budget Model—
2026
The Budget Lab
at Yale—2026
Tax
Foundation—
2026
Lowest Quintile
0.6%
1.2%
0.8%
2.2%
Second Quintile
1.0%
1.3%
1.2%
2.2%
Middle Quintile
1.3%
1.4%
1.5%
1.9%
Fourth Quintile
1.4%
2.0%
1.6%
2.2%
Top Quintile
2.3%
see Addendum
see Addendum
3.4%
All
1.8%
2.2%
1.5%
2.1%
Addendum
80%-90%
1.3%
90%-99%
2.3%
90%-95%
1.7%
2.2%
2.6%
95%-99%
3.2%
3.3%
4.4%
Top 1%
3.2%
99%-99.9%
Top 0.1%
Congressional Research Service
3.0%
4.8%
2.3%
2.4%
2.4%
1.5%
2
Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
Sources: Urban-Brookings Tax Policy Center, “T24-0025—Make Certain Provisions in the 2017 Tax Act
Permanent, by ECI Percentile,” 2027, July 8, 2024, https://www.taxpolicycenter.org/model-estimates/makecertain-provisions-2017-tax-act-permanent-july-2024/t24-0025-make-certain; Penn Wharton Budget Model, The
Budgetary and Economic Effects of Permanently Extending the 2017 Tax Cuts and Jobs Acts’ Expiring Provisions, May 22,
2024, https://budgetmodel.wharton.upenn.edu/issues/2024/5/22/effects-of-permanently-extending-tcja-expiringprovisions; The Budget Lab at Yale, Tax Cuts and Jobs Act Expiration: Options for the Tax Code, April 12, 2024,
https://budgetlab.yale.edu/research/tax-cuts-and-jobs-act-expiration-options-tax-code; and Tax Foundation,
Options for Navigating the 2025 Tax Cuts and Jobs Act Expirations, May 7, 2024, https://taxfoundation.org/research/
all/federal/2025-tax-reform-options-tax-cuts-and-jobs-act/.
Note: Year of estimation provided in each column.
Factors contributing to differences in the estimates include differences in the measures of income
(for example, a narrower measure of income results in a larger percentage change) and
differences in the provisions included.3 In addition, the distribution is affected by assumptions
about who bears the economic cost or benefit of business provisions that affect corporate taxes.4
All estimates find that the effects are generally largest at the higher income levels, indicating that
extending the TCJA provisions is expected to make incomes more unequal.
Economic Effects
The Budget Lab at Yale University estimates that the effects of TCJA extension of individual
provisions on gross domestic product (GDP) would reach a peak of a 0.4% increase in 2028, but
become slightly negative at the end of the budget period, with a continually larger decline in
subsequent years. The average increase in GDP would be 0.2%, resulting in a feedback effect that
offsets less than 1% of static revenue. Its model is based on the one used by the Federal Reserve
Board. The projected economic effects are largely due to changes in aggregate demand from the
lower taxes initially, and crowding out of investment due to increases in the national debt in the
long run.5
CBO estimated the revenue gain from the expiration of the individual income tax cuts (but not
bonus depreciation), which is the mirror image of the extension, finding negligible effects.6 It
found an initial reduction of GDP with a peak decline of 0.3% in 2027, but an eventual increase
in GDP by 2033. The average reduction in GDP is 0.1% over the budget window FY2025FY2034. These effects reflect the decline in aggregate demand, the increase in labor supply, the
changes in investment incentives (positive for owner-occupied housing and negative for business
investment), and the crowding in of investment due to the decrease in the deficit. This latter tends
to eventually dominate the others, so in the longer run, the effects on GDP would be positive.
Overall, CBO estimates these effects to be modest. The CBO estimates are generally consistent
3 The Budget Lab at Yale includes only the individual and estate provisions, and not general business provisions. The
Urban Brookings Policy Center includes the provisions in the CBO’s document (which excludes the research and
interest provision), while the Penn Wharton Budget Model and the Tax Foundation include them but exclude the
international provisions.
4 The Urban-Brookings Tax Policy Center and the Penn Wharton Budget Model assign most of the burden of the
corporate tax to capital, following the practices of the JCT, CBO, and Treasury. The assumption in the Tax Foundation
Model is not clear. For a discussion of the evidence on corporate tax incidence, which suggests that most of the burden
falls on capital, see CRS Report RL34229, Corporate Tax Reform: Issues for Congress, by Jane G. Gravelle. See also
the briefer discussion of corporate tax incidence in Jane G. Gravelle, “When Estimated Economic Effects Fail the Sniff
Test,” National Tax Journal, vol. 76, no. 3 (September 2023), pp. 621-646.
5 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration, April 12, 2024, https://budgetlab.yale.edu/sites/
default/files/2024-04/The%20Budget%20Lab%20TCJA%20Report%202024.pdf.
6 CBO, How the Expiring Individual Income Tax Provisions in the 2017 Tax Act Affect CBO’s Economic Forecast,
December 4, 2024, https://www.cbo.gov/publication/60986.
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
with the Budget Lab’s projection and indicate that extending the expiring provisions will reduce
output in the longer run.
The Tax Policy Center, which uses a similar model, estimated a 0.4% increase in GDP, which
offsets about 6% of the static revenue loss. Its estimate also reflected the effects of reinstating full
expensing of equipment.
The JCT uses three different models to project the effects of extending the individual tax changes.
They are (1) the Macroeconomic Growth Model (MEG), which allows the effects of aggregate
demand and crowding out as well as labor supply (similar to CBO’s model); (2) the Overlapping
Generations Model (OLG), which is similar to the Penn Wharton model and only captures
supply-side effects; and (3) the Dynamic Stochastic General Equilibrium Model (DSGE), which
also captures supply-side effects but with an infinite horizon.7 The MEG model estimated a 0.2%
increase in output over the budget horizon. The OLG model estimates a 0.5% increase in the first
five years and a 0.7% increase in the second five years. The DSGE model estimates a 0.5%
increase in the first five years and a 0.9% increase in the second five years. The extent to which
each model is given a weight will determine the JCT’s overall estimate of the economic effects of
extending the tax cuts.
The remaining two private-sector models do not estimate the effects of crowding out of
investment or demand-side effects.8 An analysis by the Penn Wharton Budget Model, which
considers the permanent extension of the major provisions and includes the research and interest
provisions as well as expensing, projects an increase in GDP of 0.3% by 2034, eventually
declining to 0.2% by 2054.9 The Penn Wharton model generally reflects supply-side effects
through a life cycle model (via increases in labor and capital). The Tax Foundation finds a longrun steady state increase in GDP of 1.1%. The Tax Foundation’s model is a growth model and
also reflects the supply-side effects of increased labor and capital; it has a large savings
response.10 These last two models do not capture crowding out or demand-side effects.
Individual Tax Reform
Tax Rate Reform
The TCJA set individual marginal tax rates at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The
top rate of 37% applies to taxable income over $600,000 for married joint filers, or $500,000 for
single and head of household filers in 2018, indexed for inflation. The rates prior to the TCJA
were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Absent the TCJA changes, the top rate of
39.6% would have applied to taxable income over $480,050 for married joint filers, $453,350 for
head of household filers, or $426,700 for single filers in 2018, also indexed for inflation.11 While
the bottom two brackets covered the same taxable income levels, these brackets changed for other
7 JCT, JCT Methodology For Analyzing Macroeconomic Effects 2024, December 12, 2024, https://www.jct.gov/
publications/2024/jct-methodology-for-analyzing-macroeconomic-effects-2024/.
8 For a discussion of dynamic tax models see CRS Report R43381, Dynamic Scoring for Tax Legislation: A Review of
Models, by Jane G. Gravelle.
9 Penn-Wharton Budget Model, The Budgetary and Economic Effects of Permanently Extending the 2017 Tax Cuts and
Jobs Acts’ Expiring Provisions.
10 The model keeps the after-tax rate of return fixed, which implies an infinitely elastic savings response.
11 See CRS Report RL34498, Federal Individual Income Tax Brackets, Standard Deduction, and Personal Exemption:
1988 to 2025, by Brendan McDermott, for historical rate brackets. For further information, congressional offices may
contact Jane G. Gravelle.
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
income levels.12 Extending the TCJA rate reduction was estimated to lose $2,159 billion through
2034.
JCT estimated the rate cuts to be the largest source of tax reduction for the individual income tax
(excluding certain business provisions which apply to both corporations and individuals),
accounting for over 70% of the projected revenue loss. The Budget Lab at Yale finds that the rate
cuts favor the top 1% and the eighth decile the most (measured as percentage change in after-tax
income), increasing after-tax income by 1.8% to 1.9%, followed by the fourth quintile at 1.6%,
the middle quintile at 1.1%, the 90th to 99th percentiles by 0.7%, and the second quintile by 0.3%,
with no effect on the bottom quintile.13 The rate cuts are also a major contributor to aggregate
demand effects in that model.
Pass-Through Deduction
Under the new Section 199A in the TCJA, taxpayers may deduct 20% of qualified pass-through
business income. The deduction is limited to the greater of 50% of W-2 wages, or 25% of W-2
wages plus 2.5% multiplied by the value of depreciable property (equipment and structures) for
higher incomes. Specified service businesses generally may not claim the deduction (these are
health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services,
brokerage services, and services consisting of investment and investment management, and
trading of securities, partnership interests, or commodities). The specified service business
definition does not include architecture or engineering firms. In 2024, both the deduction
limitation and specified service business limitation do not apply if taxable income is less than
$191,950 (unmarried) or $383,900 (married filing jointly). These limits are phased in over a
$50,000 (single) and $100,000 (married) range, and thus apply fully at $241,950 (single) and
$483,900 (married). The thresholds at which these limits begin to apply are adjusted for inflation
annually.
JCT estimated the extension of the pass-through deduction to cost $684 billion through 2034.
According to the Budget Lab at Yale, the pass-through deduction has the largest effect, measured
as a percentage change in after-tax income, on the top 1%, for whom it increases after-tax income
by 1.1%. There is little to no effect in the bottom four quintiles.14 This effect may arise from two
factors. First, higher-income taxpayers are more likely to receive qualifying pass-through
business income than lower-income taxpayers. Second, the value of a tax deduction depends upon
the taxpayer’s marginal income bracket. A deduction is worth more to a taxpayer in the 37%
income bracket than a taxpayer in the 10% income bracket. A deduction does not benefit a
taxpayer who does not have taxable income.
The pass-through deduction was enacted in part to lower taxes for businesses not taxed as
corporations and thus not benefitting from the corporate rate cut (from 35% to 21%). The
corporate rate cut is permanent. The provision has been criticized as adding to complexity,
especially given the phaseout and exceptions, leading firms to engage in reorganizations to
maximize use of the deduction (such as splitting business sectors or combining them). The JCT
estimated that 80% of the benefit went to taxpayers with more than $200,000 of income.15 A
12 Tables comparing the rate brackets and rates for the change are in the appendix to CRS Report R45092, The 2017
Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law, coordinated by Molly F. Sherlock and Donald J. Marples.
13 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration.
14 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration.
15 Joint Committee on Taxation (JCT), Tables Related to the Federal Tax System as in Effect 2017 through 2026, JCX(continued...)
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
Treasury study estimated that the tax savings from the deduction would be largest for businesses
in (1) professional services, (2) real estate, (3) construction, (4) retail trade, and (5)
manufacturing. The deduction reduced the cost of investment, although—as with the corporate
rate cut—much of the benefit went to returns to preexisting capital.16 A study of the economic
effects of the deduction found little evidence that it affected investment, wages, or employment.17
CRS estimates of the incentive effect on investment indicated that extending the pass-through
deduction would likely decrease the cost of capital overall by about 0.8% and, using an estimated
0.6% price elasticity, would likely increase overall business investment by 0.5%.18 The passthrough deduction would thus have an initial incentive effect that is relatively small, largely
because much of the tax cut is a windfall to existing investment. These estimates do not reflect
crowding out, which would reduce investment.
Limitation on Losses for Noncorporate Taxpayers (Expires in 2028)
Prior to the TCJA, businesses were generally permitted to carry over a net operating loss (NOL)
to certain past and future years. Under the passive loss rules, individuals and certain other
taxpayers are limited in their ability to claim deductions and credits from passive trade and
business activities, although unused deductions and credits may generally be carried forward to
the next year. Similarly, certain farm losses may not be deducted in the current year, but can be
carried forward to the next year or, uniquely, carried back for two years. For taxpayers other than
C corporations, the TCJA disallowed a deduction in the current year for “excess business losses”
and treats such losses as a NOL carryover to the following year. An excess business loss is the
amount that a taxpayer’s aggregate deductions attributable to trades and businesses exceed the
sum of: (1) aggregate gross income or gain attributable to such activities; and (2) $250,000
($500,000 if married filing jointly), adjusted for inflation. For partnerships and S corporations,
this provision is applied at the partner or shareholder level.
This provision was extended through 2028 by P.L. 117-169, commonly known as the Inflation
Reduction Act. JCT project that extending this provision would increase revenues by $22 billion
from FY2029 through FY2034.
Standard Deduction, Child Credit, Personal Exemption
The TCJA repealed the personal exemptions for taxpayers and their dependents, but offset this
loss for many taxpayers by increasing the standard deduction and the child tax credit and
providing a family credit for other dependents. JCT estimates that continuing to disallow personal
exemptions would gain $1.7 trillion over 10 years. Extending the increase in the standard
deduction was projected to cost $1.3 trillion over 10 years, and extending the child credit
provisions was projected to cost $748 billion, with an offsetting gain of $12 billion from requiring
work-eligible Social Security numbers (SSNs) for the child for whom the credit is claimed. Part
32r-18, April 24, 2018, https://www.jct.gov/publications/2018/jcx-32r-18/. See also CRS In Focus IF12838, Selected
Issues in Tax Policy: Section 199A Deduction for Pass-Through Business Income, by Mark P. Keightley.
16 Lucas Goodman et al., Simulating the 199A Deduction for Pass-through Owners, U.S. Department of the Treasury,
Office of Tax Analysis, Working Paper 118, May 2019, https://home.treasury.gov/system/files/131/WP-118.pdf.
17 Lucas Goodman et al., How Do Business Owners Respond to a Tax Cut? Examining the 199A Deduction for Passthrough Firms, National Bureau of Economic Research, Working Paper 28680, January 2024, https://www.nber.org/
papers/w28680.
18 See CRS Report R48153, Marginal Effective Tax Rates on Investment and the Expiring 2017 Tax Cuts, by Jane G.
Gravelle and Mark P. Keightley. This calculation is based on the difference in the cost of capital with and without the
pass-through deduction, given certain other provisions have been enacted. See Table 9.
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
of the motivation for this set of changes was to simplify tax compliance by not requiring both a
child credit and a personal exemption and because fewer taxpayers would itemize deductions.
JCT estimates that the net cost of extending all the provisions together through 2034 would be
$270 billion.
According to the Budget Lab at Yale, this combination of provisions would increase after-tax
income in the bottom three quintiles (0.8% in the lowest, 0.9% in the second, and 0.4% in the
third) but have little effect on the fourth; decrease income in the 80th to 99th percentiles, and have
no measurable effect on the top 1%.19
Standard Deduction
The standard deduction is the sum of the basic standard deduction and, if applicable, the
additional standard deduction for the blind or elderly. The basic standard deduction amount varies
by the taxpayer’s filing status and is adjusted annually for inflation. Absent TCJA changes, the
basic standard deduction amounts for 2018 would have been $6,500 for single filers, $9,550 for
heads of household filers, and $13,000 for married taxpayers filing jointly. The TCJA increased
the dollar amounts of the basic standard deduction through 2025. Specifically, for 2018, the basic
standard deduction amounts were $12,000 for single individuals, $18,000 for heads of household,
and $24,000 for married individuals filing jointly. After 2018, these amounts are adjusted for
inflation using the chained Consumer Price Index (CPI). The additional standard deduction for
the blind and elderly is unchanged. JCT estimate that extending this change through 2034 would
cost $1.3 trillion.
According to the Budget Lab at Yale, the increase in the standard deduction offered the largest
benefits to the three middle quintiles, with a relatively smaller benefit to the top quintile, many of
whom itemize or had some of the benefit of the larger standard deduction offset by the itemized
deductions they had previously claimed. The benefit was also limited for those with very low
incomes, who pay low marginal tax rates or no taxes, making a reduction in taxable income less
valuable than for those subject to higher tax rates.
The choice to move away from itemizing is also affected by specific changes in itemized
deductions, most notably the $10,000 cap on the deduction of state and local taxes. The reduction
in the share of taxpayers who itemize deductions has implications for the incentive effects that
itemized deductions present for owner-occupied housing and charitable contributions. These
issues will be discussed below in the section on itemized deductions.
Child Credit and Credit for Other Dependents
Prior to the TCJA, the child tax credit allowed a taxpayer to reduce their federal income tax
liability by up to $1,000 per qualifying child. Taxpayers with little or no federal income tax
liability were eligible to receive the child tax credit as a refundable credit—the additional child
tax credit, or ACTC. The maximum ACTC was $1,000 per child, the same as the credit as a
whole. The ACTC equaled 15% (“the refundability rate”) of the family’s earnings in excess of
$3,000 (“the refundability threshold”). The child tax credit began to phase out for taxpayers with
income over a phaseout threshold: $75,000 for single parents and $110,000 for married taxpayers
filing joint returns. None of the parameters of the child credit were indexed for inflation.
Taxpayers claiming the child credit (including the ACTC) had to provide either a Social Security
number or individual taxpayer identification number (ITIN) for the child, issued before the due
date of the return.
19 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration.
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The TCJA increased the child credit to $2,000 per qualifying child. It also increased the
maximum ACTC to $1,400 per qualifying child in 2018, which was adjusted for inflation, and is
$1,700 in 2024. The act lowered the ACTC refundability threshold to $2,500 and increased the
phaseout thresholds to $200,000 for unmarried taxpayers and $400,000 for married taxpayers
filing jointly. These changes offset the loss of personal exemptions for dependents for many
taxpayers.20
The TCJA also modified the identification requirement for the credit: taxpayers must provide the
work-eligible Social Security number for each child claimed for the credit. The SSN must have
been issued before the due date of the return.
Further, the TCJA created a new credit for nonchild-credit-eligible dependents (children ineligible
for the child tax credit or older nonchild dependents). Otherwise, eligible dependents who are not
U.S. citizens and are residents of Mexico or Canada do not qualify as nonchild-credit-eligible
dependents. The credit is equal to $500 per non-child-credit-eligible dependent. The amount is
not annually adjusted for inflation. The phaseout parameters of the child credit (e.g., phaseout
thresholds of $400,000 married filing jointly, $200,000 other taxpayers, 5% phaseout rate) apply
to the credit for other dependents. Taxpayers do not have to provide an SSN for nonchild-crediteligible dependents.
JCT estimate that extending all of the changes to the child tax credit through 2034 would decrease
revenues by $735 billion. This amount includes $748 billion for the expansion of the child tax
credit and credit for other dependents, offset by $12 billion from the SSN requirement (figures do
not add to total due to rounding). The Budget Lab at Yale found that the increased child credits
benefited all income categories except the top 1%, with the benefits largest in the middle of the
income distribution.21
Repeal of Personal Exemptions
To calculate taxable income prior to the TCJA, taxpayers could subtract from their adjusted gross
income (AGI) a “personal exemption” for each member of their household—themselves, their
spouse (if married), and their dependents. For 2018, absent TCJA changes, the personal
exemption amount would have been $4,150. The TCJA eliminated the person exemption. JCT
estimates that extending this change alone would raise an additional $1.7 trillion in revenue
through 2034.
According to the Budget Lab at Yale, the elimination of the personal exemption had the largest
effects on the upper-middle part of the income distribution, with no effects on the top 1% and
smaller effects on the lowest quintile.22
Changes in Itemized Deductions
According to JCT estimates, extending all of the TCJA’s changes to itemized deductions together
would gain $1.2 trillion through 2034, implying a gain of roughly $1.4 trillion through 2035.
Most of the projected revenue gain is due to the limit on the state and local tax deduction. The
20 For a discussion of the effects of refundable credits on poverty, especially for children, see CRS In Focus IF12820,
Selected Issues in Tax Policy: The Child Tax Credit, by Brendan McDermott.
21 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration.
22 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration.
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Committee for a Responsible Federal Budget estimates that extending all of the provisions but
removing the cap on the state and local deduction would cost $1.2 trillion through 2035.23
Along with the increase in the standard deduction, these provisions reduced the share of returns
that itemize from 31% in 2017 to 9% in 2021. Any incentives created by itemized deductions are
irrelevant to those claiming the standard deduction, so the reduction in itemization rates suggests
these incentives are relevant to fewer taxpayers than they were prior to the TCJA. Claiming the
standard deduction can also simplify filing for many households. One recent study estimated that
households value the cost of itemizing at an average of 0.6%-0.8% of adjusted gross income.24
The combination of increases in the standard deduction and limits on the state and local tax
deduction, along with other minor changes, has direct and indirect effects on owner-occupied
housing by reducing subsidies from the mortgage interest and property tax deductions. These
provisions, along with rate changes, increased the implicit rental cost for owner-occupied housing
(the amount necessary to cover the return on investment, the tax benefits, and economic
depreciation) by about 5%.25 Nevertheless, evidence suggests there is unlikely to be much effect
on home ownership rates, because the major barrier to home ownership is the down payment and
closing costs.26 Reintroducing these homeowner subsidies could result in a potentially small
increase in house values, because some of the benefits are capitalized in asset values.
The reduction in itemizers, along with the lower tax rates, could also affect charitable giving.
Using the central tendency of estimated responses in the literature, CRS estimates the changes
would reduce charitable giving by about 3%, although the evidence suggests that charitable
deductions remained relatively constant as a percentage of GDP over the period before and after
the tax revision.27
The increased taxes due to the change in itemized deductions are concentrated in the top 10% of
the income distribution.28
Charitable Contributions Deduction
Taxpayers who itemize their deductions can deduct charitable donations of cash or property to
certain organizations, including public charities; federal, state, local, and Indian governments;
private foundations; and other less common types of qualifying organizations. There are
limitations on the total dollar amount that can be deducted by a taxpayer in a given tax year. The
limitations are defined as a percentage of the taxpayer’s adjusted gross income. Most cash
contributions are generally limited to 50% of the taxpayer’s AGI. (The limit is generally 30% of
AGI for cash contributions to nonoperating private foundations.) The TCJA increased the
percentage limit for charitable contributions of cash to public charities and other qualifying
23 Committee for a Responsible Federal Budget, “SALT Cap Expiration Could Be Costly Mistake,” August 28, 2024,
https://www.crfb.org/blogs/salt-cap-expiration-could-be-costly-mistake.
24 Youssef Benzarti, “How Taxing is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs,”
American Economic Journal: Economic Policy, November 2020, vol. 12, no. 4 (November 2020), pp. 38-57.
25 CRS Report R48153, Marginal Effective Tax Rates on Investment and the Expiring 2017 Tax Cuts, by Jane G.
Gravelle and Mark P. Keightley.
26 CRS In Focus IF11540, The Mortgage Interest Deduction, by Mark P. Keightley and CRS In Focus IF12789,
Selected Issues in Tax Policy: The Mortgage Interest Deduction, by Mark P. Keightley.
27 CRS Report R45922, Tax Issues Relating to Charitable Contributions and Organizations, by Jane G. Gravelle,
Donald J. Marples, and Molly F. Sherlock.
28 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration.
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organizations to 60% of AGI. The 30% of AGI limitation on cash donations to private
nonoperating foundations is unchanged.
Although this change was favorable to charitable contributions, it affects few taxpayers, because
the charitable deduction as a share of income was 6% in 2021, the most recent year for which
data are available. The highest-income group, over $10 million of adjusted gross income, also
made contributions equal to 6% of income.29
State and Local Tax (SALT) Deduction Cap
State and local income and property taxes, as well as foreign property taxes, are deductible as an
itemized deduction. State and local sales taxes paid may be deducted in lieu of income taxes. The
TCJA limited itemized deductions for state and local income, sales, and property taxes to
$10,000. No deduction is allowed for foreign real property taxes. Property taxes associated with
carrying on a trade or business are fully deductible.
State and local tax deductions are especially likely to occur in high-income and high-tax states. In
2020, the share of filers claiming the deduction ranged from 3% in West Virginia to 21% in
Maryland.30 Because almost all itemized deductions include state and local taxes, the reduction in
the share of taxpayers who took the SALT deduction was similar to the overall reduction in the
share of taxpayers who itemized. The deductions are also concentrated in the top 10% of the
income distribution.
Mortgage Interest Deduction
Prior to the TCJA, mortgage interest was deductible on the first $1 million of combined (first and
second home) acquisition debt, plus interest on $100,000 of home equity debt. The TCJA limited
the amount of mortgage interest that may be deducted to the interest paid on the first $750,000 of
mortgage debt. The limitation applies to new loans incurred after December 15, 2017. Mortgage
debt that is the result of a refinance on or before December 15, 2017, is exempt from the
reduction to the extent that the new mortgage does not exceed the amount refinanced. No
deduction is allowed for interest payments on new or existing home equity debt, if such debt is
used for purposes unrelated to the property securing the loan.
Personal Casualty Loss Deduction
Taxpayers can claim an itemized deduction for noncompensated personal casualty losses. Prior to
the TCJA, casualty losses were generally deductible to the extent they exceeded $100 per
casualty, and to the extent that the aggregate net casualty losses exceeded 10% of adjusted gross
income.
The TCJA limited the itemized deduction for casualty losses to only apply to losses resulting
from a disaster declared by the President under Section 401 of the Robert T. Stafford Disaster
Relief and Emergency Assistance Act.31
29 Internal Revenue Service, “Statistics of Income, Table 2.1: Individual Income Tax Returns with Itemized
Deductions: Sources of Income, Adjustments, Itemized Deductions by Type, Exemptions, and Tax Items,”
https://www.irs.gov/statistics/soi-tax-stats-individual-statistical-tables-by-size-of-adjusted-gross-income.
30 Urban-Brookings Tax Policy Center, “How Does the Federal Income Tax Deduction for State and Local Taxes
Work?,” The Tax Policy Briefing Book, updated January 2024, https://www.taxpolicycenter.org/briefing-book/howdoes-federal-income-tax-deduction-state-and-local-taxes-work.
31 CRS In Focus IF12574, The Nonbusiness Casualty and Theft Loss Deduction, by Brendan McDermott.
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Subsequent legislation altered the casualty loss deduction for eligible disaster-related losses by
allowing the deduction regardless of whether the taxpayer itemizes, eliminating the 10% of
income floor, and raising the dollar floor to $500. These changes applied only to losses related to
specific disasters or over specified periods of time. Disasters that occurred after December 27,
2020, do not qualify.
Itemized Deduction for Miscellaneous Expenses
Prior to the TCJA, individual taxpayers who itemized their deductions could deduct
miscellaneous expenses to the extent that they collectively exceeded 2% of AGI. Expenses
subject to the 2% floor included unreimbursed employee expenses, tax preparation fees, and
certain other expenses. The TCJA temporarily suspended itemized deductions for miscellaneous
expenses for tax years 2018 through 2025.
Overall Limitation on Itemized Deductions
For taxpayers with AGI above certain thresholds (inflation adjusted; would have equaled
$320,000 for married taxpayers filing jointly and $266,700 for singles in 2018), the total amount
of itemized deductions is limited under permanent law (i.e., absent TCJA changes). For affected
taxpayers, the total of certain itemized deductions is reduced by 3% of the amount of AGI
exceeding the threshold. The total reduction, however, cannot be greater than 80% of the
deductions. The itemized deductions not subject to the limitation include deductions for medical
and dental expenses, investment interest, qualified charitable contributions, and casualty and theft
losses. The TCJA repealed the overall limitation on itemized deductions through 2025.
This provision does not function as a limit on the value of itemized deductions (unless it meets
the maximum) because it is triggered by changes in income. It is equivalent to increasing the
marginal tax rate by 3% for affected taxpayers and should be viewed as a rate reduction. For
example, an affected taxpayer in the top pre-TCJA bracket of 39.6% actually has a tax rate of
40.8% (39.6% times 1.03) or 1.2 percentage points higher. The direct rate reduction is 2.6
percentage points (39.6% minus 37%) Thus, overall, the effective tax rate for these taxpayers who
itemize decreases by 3.8 percentage points (40.8% minus 37%).
In 2017, $54.5 billion in deductions were disallowed because of the limit. Assuming a 36% tax
rate, this decline in deductions would have raised revenues by $20 billion. Based on the growth of
the cost between 2017 and the FY2026-FY2035 JCT projections, that amount would be about $40
billion per year or $400 billion over 10 years for an extension.
Other Individual Provisions
ABLE Account Contribution Limit
ABLE (Achieving a Better Life Experience) accounts are tax-favored savings accounts intended
to benefit qualifying disabled individuals (referred to as “designated beneficiaries”). Prior to the
TCJA, ABLE accounts could not receive aggregate contributions in excess of the annual gift tax
exemption, which is $18,000 in 2024.
The TCJA increased the annual contribution limits on ABLE accounts in certain circumstances.
Specifically, a designated beneficiary can contribute an additional amount to their ABLE account
(above the annual gift-tax exclusion amount) equal to the lesser of (1) the federal poverty level
for a one-person household or (2) the individual’s compensation for the year. While the TCJA did
not change the base gift tax exclusion amount, it changed the inflation adjustment to chained CPI.
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Additionally, the TCJA made contributions to an ABLE account by that account’s beneficiary
eligible for the saver’s credit through 2025. The saver’s credit is a nonrefundable credit of up to
$2,000 per individual for saving in certain vehicles, previously only including certain retirement
accounts. Under current law, the saver’s credit will be replaced with a new saver’s match starting
in 2027.32
JCT estimates that extending the increase in qualified contributions to ABLE accounts through
2034 would cost less than $500,000, while extending the expansion of the savers credit would
cost $2 million.
529 to ABLE Account Rollover
Rollovers from a 529 plan (education savings plan) to an ABLE account (including amounts
below the annual ABLE account contribution limit) were taxable prior to the TCJA. The TCJA
allows tax-free rollovers from a 529 account to an ABLE account that are equal to or less than the
annual ABLE contribution limit. These rollovers are not subject to taxation provided that the
ABLE account is that of the designated beneficiary of the 529 account (or a member of the
designated beneficiary’s family). The portion of the rollover in excess of the annual contribution
limit is taxable.
JCT estimates that extending this provision through 2034 would cost $4 million.
Combat Zone Tax Exclusion
Members of the Armed Forces serving in a combat zone (and their families) are entitled to several
tax benefits, including (but not limited to) (1) an exemption from income and employment
("payroll”) taxes on certain military pay received during any month in which the member served
in a combat zone; (2) an exemption from income taxes during the year that the member dies while
serving in a combat zone and the year prior; (3) special estate tax rules where death occurs in a
combat zone; (4) special benefits to surviving spouses when death occurs in a combat zone; (5) an
extension of tax deadlines, including for filing returns, making payments, claiming credits or
refunds, and certain other deadlines; and (6) an exclusion of telephone excise taxes.33 The TCJA
grants combat zone tax benefits to members of the Armed Forces in the Sinai Peninsula of Egypt,
if as of the date of enactment, any member of the Armed Forces is entitled to special pay under
Section 310 of Title 37 of the U.S. Code (relating to special pay and duty pay subject to hostile
fire or imminent danger) as a result of serving in this area. This provision is generally effective
beginning June 9, 2015, and remains in effect while this condition is met or until the statutory
sunset in 2025, whichever comes first.
JCT estimates that extending this provision through 2034 would cost $7 million.
Discharged Student Loans
Generally, gross income includes discharged student loan debt, hence these amounts are typically
taxable. There are exceptions to this general rule, but these exceptions did not include the death or
disability of the student prior to 2018. The TCJA expanded the categories of nontaxable
discharged student loan debt to include student loan debt that is discharged on account of the
death or permanent and total disability of the student through 2025. Lawmakers later expanded
32 CRS In Focus IF11159, The Retirement Savings Contribution Credit and the Saver’s Match, by Brendan McDermott.
33 The six provisions are found in the Internal Revenue Code (IRC): (1) IRC Sections 112 and 3401(a)(1), (2) IRC
Section 692, (3) IRC Section 2201, (4) IRC Sections 2(a)(3) and 6013(f)(1), (5) IRC Section 7508, and (6) IRC Section
4253(d).
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this provision to cover all discharged student loan debt through 2025. The current-law provision
is much broader than the original 2017 provision.
Loans available for discharge cover tuition and fees, books and other supplies for courses, room
and board, and transportation.
JCT estimated the revenue loss of the broader provision at $7.3 billion. In the original 2017
legislation, this provision was estimated to cost $85 million over the next 10 years.
Bicycle Commuter Reimbursement
Prior to the TCJA, up to $20 per month in employer reimbursements for qualifying bicycle
commuting expenses were excludable from the employee’s income and wages and hence not
subject to income or employment taxes. The TCJA repealed the exclusion for employer-provided
bicycle commuter fringe benefits.
JCT estimated that extending this provision through 2034 would gain $160 million.
Moving Reimbursements Exclusion
Prior to the TCJA, qualified moving expense reimbursements from an employer were generally
excludable from an employee’s gross income and hence not subject to income or employment
taxes. The TCJA repealed the exclusion for employer-provided qualified moving expense
reimbursements (other than for members of the Armed Forces).
JCT estimated that extending this provision through 2034 would gain $7.4 billion.
Moving Expenses Deduction
Prior to the TCJA, taxpayers could claim an above-the-line deduction for moving expenses
incurred as a result of work at a new location, subject to certain conditions regarding the
individual’s employment status as well as the distance of the move. Special rules applied to
members of the Armed Forces. The TCJA repealed the deduction for moving expenses (other than
for members of the Armed Forces).
JCT estimated that extending this provision through 2034 would gain $9.8 billion.
Wagering Losses Deduction
A taxpayer may deduct gambling losses up to the amount of gambling winnings that are included
in gross income. Prior to the TCJA, professional gamblers could also deduct business expenses
related to their gambling activities, making it possible for them to generate a net operating loss.
The TCJA included the deductible business expenses of professional gamblers in the definition of
losses, such that the total deductions attributable to professional gambling were limited to
winnings included in gross income. This revision provides that gambling losses include
deductible expenses incurred in carrying on the gambling activity.
JCT estimated that extending this provision through 2034 would gain $47 million.
Estate and Gift Tax
Estate and gift taxes are levied on transfers after applying a cumulative exclusion that would have
been a $5.6 million per decedent exclusion in 2018 (the $5 million per decedent amount in statute
adjusted annually for inflation) absent the TCJA changes. The tax rate is 40%. The TCJA
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increased the federal estate and gift exclusion to $10 million per decedent (adjusted for
inflation).34
JCT estimated that extending this provision through 2034 would cost $167 billion.
The share of decedents subject to the estate tax is small, estimated at 0.07% of decedents. This
share was about 0.2% of decedents prior to the TJCA’s exclusion increase.
Concern about the estate tax often centers on farms and family businesses, although the share of
farm estates that pay taxes is also small. According to the U.S. Department of Agriculture
(USDA), about 0.2% of estates of principal operators of farms would be subject to the tax, or
approximately 89 estates.35 Another USDA study projected that the sunsetting of the larger
exemption in 2026 would increase the share of farmers subject to the tax from 0.3% to 1.0%.36
Data for businesses are more difficult to obtain, but the Urban-Brookings Tax Policy Center
(TPC) estimates that of estates with more than half their assets in farms or businesses, 300 will
pay the estate tax in 2023, accounting for 8% of taxable estates and 14% of estate tax revenue.37
Overall, the TPC estimates that no small business or farm with less than $5 million in business
assets will pay the estate tax. It also estimates that the top 10% of the income distribution pays
90% of the tax, the top 5% pays 83%, the top 1% pays 65%, and the top 0.1% pays 29%.
The TPC’s estimate of 300 taxable estates with more than half their assets in farms or businesses
appears to be about the same as the share of all estates subject to the tax, estimated at 0.09% of
decedents.38
Individual Alternative Minimum Tax
For certain taxpayers, a tax is imposed on an individual’s alternative minimum taxable income
(primarily income without a standard deduction, state and local income deduction, or deductions
for personal exemptions) less an exemption amount. For 2018, the exemption would have been
$55,400 for singles and $86,200 for married couples prior to the TCJA’s changes. The exemption
phased out beginning at $123,100 for singles and $164,100 for married couples. The tax equaled
26% of income (after applying the exemption) below thresholds of $95,750 for single filers and
$191,500 for married taxpayers filing joint returns. The tax was 28% on income above these
34 See CRS Report R48183, The Estate and Gift Tax: An Overview, by Jane G. Gravelle, for information on the estate
and gift tax.
35 U.S. Department of Agriculture (USDA), Economic Research Service, “Federal Estate Taxes,”
https://www.ers.usda.gov/topics/farm-economy/federal-tax-issues/federal-estate-taxes/.
36 Tia M. McDonald and Ron Durst, An Analysis of the Effect of Sunsetting Tax Provisions for Family Farm
Households, USDA, Economic Research Service, Economic Research Report no. 328, February 2024,
https://www.ers.usda.gov/webdocs/publications/108636/err-328.pdf?v=4877.
37 Tax Policy Center, “Who Pays the Estate Tax?,” The Tax Policy Briefing Book, updated January 2024,
https://www.taxpolicycenter.org/briefing-book/who-pays-estate-tax#:~:text=According%20to%20TPC's
%20estimates%2C%20no,Tax%20Cuts%20and%20Jobs%20Act.
38 In 2022, the population of the United States was 333.3 million and the number of deaths was 3.27 million, indicating
a death rate of 1%. See Statista, “Resident Population of the United States from 1950 to 2022,”
https://www.statista.com/statistics/183457/united-states-resident-population/, and Statista, “Number of deaths in the
United States from 1990 to 2022,” https://www.statista.com/statistics/195920/number-of-deaths-in-the-united-statessince-1990/. There are 33.2 million businesses in the United States: U.S. Small Business Administration, Office of
Advocacy, “Frequently Asked Questions About Small Business,” March 2023, https://advocacy.sba.gov/wp-content/
uploads/2023/03/Frequently-Asked-Questions-About-Small-Business-March-2023-508c.pdf. If 1% of the owners dies
each year, that is 332,000 deaths, and 300 taxable estates is 0.09%.
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thresholds, and the thresholds were indexed for inflation. Prior-year AMT amounts could be
credited against regular tax.
The TCJA increased the AMT exemption amounts to $70,300 for unmarried taxpayers (single
filers and heads of households) and $109,400 for married taxpayers filing joint returns. It also
increased the exemption phaseout to $500,000 for singles and $1 million for married taxpayers
filing jointly. These amounts are indexed for inflation.
JCT estimated that extending this provision through 2034 would cost $1.4 trillion.
The alternative minimum tax was also affected by some other changes in preferences, including
the elimination of personal deductions, the increase in the standard deduction, and the cap on
state and local tax deductions, because these were items added back to the minimum tax base.
Overall, these would be likely to reduce the size of alternative minimum taxable income, so the
revenue estimate would be smaller if scored after these items. The original JCT estimates for the
TCJA changes scored the AMT after these provisions,39 so the revenue cost would be smaller than
the current estimate, which was scored before them.
The TCJA changes decreased the share of returns paying the alternative minimum tax from 3.3%
of taxpayers in 2017 to 0.2% in 2021. Over the years since the AMT’s enactment, it became more
focused away from very high-income individuals, largely because capital gains tax benefits were
no longer included in the base, toward taxpayers who had higher incomes but were not at the very
top of the income scale. The $200,000 to $1 million adjusted gross income group was three times
more likely to be subject to the tax than the group with AGI above $1 million.40 The Budget Lab
at Yale estimated that the main effect of extending the AMT would be on taxpayers in the 90% to
99% part of the income distribution, where extension would increase after-tax income by 2.8%.41
Its analysis found a 0.9% increase in the 99% to 99.9% group and a 0.3% effect on the 80% to
90% group, with no effects elsewhere.
Business Provisions
Expensing of Equipment (Completes Phaseout in 2026)
Assets such as equipment and buildings are depreciated over time. Prior to the TCJA, bonus
depreciation for equipment, purchased software, and structures with recovery periods no more
than 20 years was allowed an immediate deduction of 50% for assets placed in service in 2017,
40% in 2018, and 30% in 2019. Long-lived property was not eligible. The phasedown was
delayed for certain property, including property with a long production period. Additionally,
under separate permanent law, smaller businesses (formally, those with annual investment of
$1,220,000 or less in 2024; adjusted annually for inflation) may elect under Section 179 to
expense investments (claim 100% bonus depreciation).
The TCJA allowed full and immediate expensing (100% bonus depreciation) for business assets
of businesses too large to qualify for Section 179 expensing through 2022; the bonus percentage
is reduced by 20% per year for four years starting in 2023. The TCJA excluded regulated public
utilities (but eliminated the interest limit for these assets) and added theatrical movies and
television programs to eligible assets. The phasedown was delayed for property with a long
39 JCT, Estimated Budget Effects of The Conference Agreement for H.R.1, The Tax Cuts and Jobs Act, December 18,
2017, JCX-67-17, https://www.jct.gov/publications/2017/jcx-67-17/.
40 CRS In Focus IF10705, Tax Reform: The Alternative Minimum Tax, by Donald J. Marples.
41 The Budget Lab, Yale University, Tax Cuts and Jobs Act Expiration.
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production period. This provision also applies to computer software. Expensing is not available to
real estate and farming businesses that elect out of the limit on interest deductions.
JCT estimated that extending this provision through 2034 would cost $378 billion.
The cost would be higher for a permanent expensing provision. The 10-year cost is offset by
gains beginning in 2024, as expensing costs are more than offset by the reduction of depreciation
deductions that would otherwise occur over a period of years. For a permanent provision, there
would be a steady-state loss due to growth in the economy.
Full expensing leads to an effective zero tax rate at the firm level on new tangible business
investment entirely with equity, and to negative tax rates when investment is financed in part by
borrowing. Incentives for equipment investment favor those investments relative to investment in
buildings, although they lead to more uniform treatment with respect to investment in most
intangibles, which are currently expensed or eligible for a credit. The effects on investment
depend on the degree to which expensing affects the user cost of capital, which is a measure of
how much must be paid for the use of equipment (including taxes, the after-tax return, and the
wear and tear on the asset, or depreciation), and how investment responds to changes in the user
cost. An estimate using the CRS marginal effective tax rate model found that the user cost would
be 4.5% higher for corporations without expensing compared to full expensing.42 Corporate
equipment is about 68% of total corporate and noncorporate business investment. The estimate
for noncorporate equipment is not relevant because it includes both expensing and other
provisions (rate increases and loss of the pass-through deduction), but it would probably be
similar to the corporate change. The elasticity (percentage change in quantity divided by
percentage change in price) is around 0.6, so the estimated percentage change in investment is a
decline of about 2.7%.43 These effects may be smaller—1.7%, since about 60% of investment is
by firms that adopt bonus depreciation.44 The change in user cost for software is smaller, 2.9%.
CBO estimated a similar reduction in the overall user cost of equipment, 4.3%, using an elasticity
of 0.7, indicating an estimated 3.0% increase in investment.45 CBO estimated the overall effect on
all types of business investment to be a reduction in user cost of 2.3%, an increase in investment
of 1.5%, and an increase in GDP of 0.3%.
CRS estimates that the combination of expensing for equipment, expensing for research, and
returning to the 2018 interest limits (the last is relatively small) would reduce the overall cost of
capital by 3.3%, indicating an increase in investment of 2.0%.
These percentages do not reflect the effects of crowding out, which would reduce them (and,
according to the CBO overall effects, lead to a reduction in overall investment).
Citrus Plants Lost by Casualty (Expires in 2026)
The uniform capitalization (UNICAP) rules address the method for determining costs that
taxpayers are required to capitalize or treat as inventory. They generally apply to property
produced in a trade or business or acquired for resale. One exception is for edible plants lost or
damaged by reason of a casualty or similar event. The exception may apply to (1) the taxpayer’s
42 CRS Report R48153, Marginal Effective Tax Rates on Investment and the Expiring 2017 Tax Cuts, by Jane G.
Gravelle and Mark P. Keightley.
43 CRS Report R48153, Marginal Effective Tax Rates on Investment and the Expiring 2017 Tax Cuts, by Jane G.
Gravelle and Mark P. Keightley.
44 Thomas Brosny et al., “Business Uptake of Investment Expensing,” Tax Notes, October 3, 2022. pp. 27-33.
45 CBO, CBO’s Model for Estimating the Effects on New Investment of Deductions to Recover the Cost of Capital,
December 4, 2024, https://www.cbo.gov/publication/60985.
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cost of replanting such plants and (2) costs paid or incurred by other persons if the taxpayer has
more than a 50% equity interest in the plants at all times during the year and the other person
owns any of the remaining interest and materially participates in the planting or similar activities.
The TCJA expanded the existing edible plants exception for costs paid or incurred after
December 22, 2017, for citrus plants lost due to a casualty. Under the provision, the existing
exception also applies to persons other than the taxpayer if (1) the taxpayer has an equity interest
of at least 50% in the replanted plants at all times during the year and the other person owns any
of the remaining interest, or (2) the other person acquired the taxpayer’s entire equity interest in
the land on which the plants were located and the replanting is on such land.
An estimate for the cost of extending this provision was not available in the most recent JCT
projections, but the committee estimated it at $11 million over 10 years in its 2023 projections,
which were generally smaller because the budget period went through 2033.46
Amortization of Research Expenditures
Prior to the TCJA, research expenditures could be deducted immediately (expensed). The TCJA
required, effective in 2022, that costs be amortized and recovered in equal amounts over five
years. This provision does not expire, but Congress has considered proposals to reinstate
expensing.47
Under Section 174 of the Internal Revenue Code, a business had three choices for recovering its
qualified expenditures for qualified research prior to the TCJA. One is to deduct as a current
expense some or all of its qualified spending in a tax year. A second option is to capitalize that
spending and recover it over the useful life of any asset resulting from the research; this life
cannot be less than five years. Finally, a business may elect to amortize its research expenditures
over 10 years. Research expenditures not deductible under Section 174 must be capitalized under
Sections 263(a) (capital expenditures) or 263A (inventory). The following expenses qualify for
the Section 174 deduction: (1) wages and salaries of employees directly engaged in qualified
research, (2) the cost of operating and maintaining research facilities (e.g., utilities and
depreciation), and (3) expenditures for materials and supplies used in qualified research. No
deduction is allowed for expenditures on land and depreciable or depletable property used in such
research.
The TCJA requires “specified research or experimental expenditures” related to domestic research
to be capitalized and amortized over 5 years, beginning with the midpoint of the tax year when
the expenditures were incurred or paid. The recovery period rises to 15 years for qualified
expenditures related to foreign research. The TCJA repealed the option to amortize qualified
research expenditures over 10 years and the option to deduct those expenditures in full as a
current expense. The new provision applies to amounts paid or incurred in taxable years
beginning after December 31, 2021. It also appears to eliminate the basis adjustment, which
reduces the amount of expenditures that can be deducted by the research credit.48
46 The detailed estimates are in the supplemental data accompanying CBO, Budgetary Outcomes Under Alternative
Assumptions About Spending and Revenues, May 16, 2023, https://www.cbo.gov/publication/59154#data.
47 CRS In Focus IF12572, Business Tax Provisions in the Tax Relief for American Families and Workers Act of 2024,
by Jane G. Gravelle.
48 For a discussion of the credit, see CRS Report RL31181, Federal Research Tax Credit: Current Law and Policy
Issues, by Gary Guenther. For further information, congressional offices may contact Jane G. Gravelle. For a
discussion of the basis adjustment see CRS In Focus IF12815, How the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97)
Changed Cost Recovery and the Tax Credit for Research, by Jane G. Gravelle and Mark P. Keightley.
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
The JCT’s most recent estimates did not include extension of this provision. The move from
expensing of research to five-year amortization was estimated by the JCT at the time to gain $120
billion over six years beginning in FY2022. This gain would become smaller over time. The
Penn-Wharton Budget Model estimates a cost of $188 billion for FY2025-FY2034.49
Research expenditures are also eligible for a tax credit, and the amount of expenditures is reduced
by the credit for expensing under Section 280C of the tax code. The language in the TCJA was
changed to reduce the credit by the amount of the credit in excess of the deduction, effectively
eliminating the basis adjustment.50 These features together lead to significant negative effective
tax rates (effectively a subsidy) under either expensing or five-year amortization, largely due to
the credit. Some argue evidence suggests that there is underinvestment in research because the
social benefits of the assets exceed the private benefits. That is, companies cannot fully capture
the earnings from investments in research. Both expensing and the R&E credit, they argue, are
often justified on this basis.51 The increase in the user cost of research investments by the
corporate sector, where almost all of the R&D assets are held, is estimated by CRS at 2.1% due to
the move to amortization and elimination of the basis adjustment.52 CBO estimates a larger effect
on intangibles of 5.4%.53
Deduction for Interest Paid
Before the TCJA, the deduction for net interest was limited to 50% of adjusted taxable income for
firms with a debt-equity ratio above 1.5. Interest above the limitation may be carried forward
indefinitely both before and after the TCJA. The TCJA generally limits deductible interest to 30%
of adjusted taxable income for businesses with gross receipts greater than $25 million. Under
prior law and the temporary provisions of the TCJA, this interest limit applied to earnings
(income) before interest, taxes, depreciation, amortization, or depletion (referred to as EBITDA).
After 2021, the TCJA permanently changed the measure of income to earnings (income) before
interest and taxes (referred to as EBIT). This change results in a smaller income base and a lower
ceiling on the deduction. The provision also excepts floor plan financing. Regulated public
utilities are not subject to the limit, and real estate and farm businesses can elect out of it. The Tax
Relief for American Families and Workers Act of 2024 proposes to reinstate EBITDA as the basis
for the limit.54
This provision was not included in the latest JCT estimates. The JCT’s original estimates in the
2017 TCJA score for all of the changes in the interest deduction limit projected a revenue gain of
$253 billion over a 10-year period.55 There was an increase in the gain of about 50% with the
49 Penn-Wharton Budget Model, The Budgetary and Economic Effects of Permanently Extending the 2017 Tax Cuts
and Jobs Acts’ Expiring Provisions.
50 CRS In Focus IF12815, How the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97) Changed Cost Recovery and the Tax
Credit for Research, by Jane G. Gravelle and Mark P. Keightley.
51 For a discussion of this evidence see CRS Report RL31181, Federal Research Tax Credit: Current Law and Policy
Issues, by Gary Guenther.
52 CRS Report R48153, Marginal Effective Tax Rates on Investment and the Expiring 2017 Tax Cuts, by Jane G.
Gravelle and Mark P. Keightley.
53 CBO, CBO’s Model for Estimating the Effects on New Investment of Deductions to Recover the Cost of Capital,
December 4, 2024, https://www.cbo.gov/publication/60985. It appears that CBO does not eliminate the basis
adjustment.
54 CRS In Focus IF12572, Business Tax Provisions in the Tax Relief for American Families and Workers Act of 2024,
by Jane G. Gravelle.
55 JCT, Estimated Budget Effects of The Conference Agreement for H.R.1, The Tax Cuts and Jobs Act.
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
move from EBITDA to EBIT. The Penn Wharton Budget Model estimates a revenue loss of $71
billion from FY2025 through FY2034.56
One study estimates that the interest limit disallows 15% of interest deductions under EBIT and
7.5% under EBITDA for large corporations.57
The restrictions on interest, called thin capitalization rules, were partially enacted to address
concerns about large multinational businesses locating borrowing in the United States as a
method to shift profits out of the United States and to foreign, lower-tax jurisdictions. In addition,
debt-financed investments are favored by the tax law because nominal interest is deducted (i.e.,
the gains from repaying debt in cheaper dollars are not recognized), while most interest is not
taxed to the lender, resulting in a subsidy rather than a tax. This favoritism may be offered as a
reason for limiting interest deductions.
Deductions for Employer Meals
Under both prior law and the TJCA, deductions for food or beverages are generally limited to
50% of expenses (with certain exceptions). Meals provided for the convenience of the employer
can be excluded from an employee’s gross income. For 2018 through 2025, the TCJA expanded
the 50% limit to include employer expenses associated with providing meals to employees
through an eating facility meeting de minimis fringe requirements for the convenience of the
employer.
This provision was not in the JCT’s most recent estimates.
Employer Credit for Paid Family and Medical Leave
The employer credit for paid family and medical leave was originally scheduled to expire after
2019. The credit was extended through 2020 in the Further Consolidated Appropriations Act,
2020 (P.L. 116-94), and through 2025 in the Taxpayer Certainty and Disaster Tax Relief Act of
2020 (Division EE of P.L. 116-260).
The TCJA provides a tax credit for employers paying wages to employees on family and medical
leave. If the employer is paying 50% of wages normally paid to an employee not on leave, the
credit is 12.5% of wages paid. The credit is increased by 0.25 percentage points (up to 25%) for
each percentage point the ratio of leave wages to wages normally paid exceeds 50%. Employers
may claim the credit for up to 12 weeks of paid leave per employee. Leave required by state or
local law is not taken into account for purposes of the credit. Eligible employers are those that
allow all full-time employees at least two weeks of paid family and medical leave (with leave
time prorated for part-time employees) and provide family and medical leave separate from
vacation or personal leave. A qualifying employee is one who has been employed by the
employer for at least one year, and who, during the preceding year, had compensation not in
excess of 60% of the compensation threshold for highly compensated employees ($120,000 for
2017 and 2018, effectively limiting the credit to employees who were paid no more than
$72,000).
The JCT estimated that extending this provision through 2034 would cost $4.6 billion.
56 Penn-Wharton Budget Model, The Budgetary and Economic Effects of Permanently Extending the 2017 Tax Cuts
and Jobs Acts’ Expiring Provisions.
57 Ernst and Young, Economic Impacts of a Stricter 163(j) Interest Expense Limitation, Prepared on behalf of the
National Association of Manufacturers (NAM), October 2023.
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Expiring Provisions of P.L. 115-97 (the Tax Cuts and Jobs Act): Economic Issues
This provision would benefit workers without access to paid family leave to the extent the credit
increases the number of firms offering the leave. Lower-income workers are less likely to have
access to this type of leave. In 2022, 25% of workers had access, covering 38% of workers in the
top quarter of wage earners but 13% in the bottom quarter. Access to this leave has been growing
over time.58
To date, there has been limited research on the credit. In 2023, the Department of the Treasury’s
Office of Tax Analysis (OTA) examined claims for the credit in 2020. OTA found that a total of
1,230 businesses claimed the credit nationwide. Those businesses claimed a total of $101 million,
with 88% of the benefit going to businesses with revenue over $1 billion.59
Qualified Opportunity Zones (Expires in 2026)
The TCJA allowed a temporary deferral of capital gains taxation if gains are reinvested in a
qualified opportunity fund and the permanent exclusion of capital gains from investments in a
qualified opportunity fund. The designation of census tracts as opportunity zones is made by a
state’s governor with the number of tracts capped by statute. This provision is scheduled to expire
in 2026.
The JCT estimated that extending this provision through 2034 would cost $70 billion.
A review of the empirical research on opportunity zones indicates mixed results on the
effectiveness.60 Early evidence found little or no effect of this provision and that the investment
was geographically concentrated.61 An overview of research and data indicated that investment
was geographically concentrated into a small share of zones, was likely to go to higher-income
and urban zones, and was more likely to be invested in real estate than in operating businesses.62
JCT data indicated that 62.7% of the investment was in real estate and 8.5% in rural areas.63
International Provisions
The TCJA altered the international tax regime by eliminating the tax on dividends received from
foreign subsidiaries and enacting a global minimum tax on certain income, known as GILTI
(global intangible low-taxed income). It also enacted a tax reduction for intangible income
received by U.S. corporations from foreign sources, FDII (foreign-derived intangible income).
GILTI and FDII are related provisions and their economic effects depend on each other. The JCT
estimated that extending these provisions through 2034 would cost $120 billion through FY3034.
58 CRS In Focus IF11141, Employer Tax Credit for Paid Family and Medical Leave, by Anthony A. Cilluffo.
59 U.S. Department of the Treasury Office of Tax Analysis, Section 45S, Employer Credit for Paid Family and Medical
Leave Claims, Counts and Dollars, October 18, 2023, https://home.treasury.gov/system/files/131/Section-45S-ClaimsTables-10172023.pdf.
60 Economic Innovation Group, Are Opportunity Zones Working? What the Literature Tells Us, October 12, 2023,
https://eig.org/opportunity-zones-research-brief/.
61 CRS Report R45152, Tax Incentives for Opportunity Zones, by Donald J. Marples.
62 Brett Theodos et al., What We Do and Don’t Know about Opportunity Zones, Urban Institute, March 21, 2023,
https://www.urban.org/urban-wire/what-we-do-and-dont-know-about-opportunity-zones.
63 JCT, Tax Incentives for Economic Development and Financing, JCX-36-24, July 26, 2024, https://www.jct.gov/
publications/2024/jcx-36-24/.
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Lower Tax Rate on Global Intangible Low-Taxed Income (GILTI)
As part of the transition to a system with the exclusion of dividends from U.S.-controlled foreign
corporations, the TCJA imposed a minimum tax on the income of these foreign corporations.
Corporations include in income their foreign-source income in excess of 10% of their tangible
assets net of interest (focusing on intangible income by excluding a deemed normal return to
tangible investments). This income is termed global intangible low-taxed income. A deduction is
allowed for 50% of this income for tax years beginning after December 31, 2017, and before
January 1, 2026, with a subsequent deduction of 37.5% thereafter. At a 21% corporate tax rate,
these deductions result in tax rates of 10.5% and 13.125%, respectively. Foreign taxes are allowed
to be creditable—80% can be credited. As a result, the lowest foreign tax rate at which no U.S.
tax is due is 13.125% initially (80% of 13.125% is 10.5%) and then 16.406%. Because the credit
is applied on a global basis, this minimum rate would be on global income. The sum of GILTI and
FDII (see below) cannot exceed taxable income considered without regard to GILTI and FDII.
Lower Deduction for Foreign-Derived Intangible Income (FDII)
The TCJA allowed a deduction for foreign-derived intangible income arising from a trade or
business within the United States. The deduction is 37.5% for tax years beginning after December
31, 2017, and before January 1, 2026, with the deduction subsequently reverting to 21.875%.
These deductions result in effective rates of 13.125% and 16.406%, respectively. Foreign-derived
intangible income is determined by multiplying intangible income of the firm (income minus
certain excepted income minus deductions minus 10% of tangible assets) by the share of
deductible income from sales of property or services to foreigners to be used abroad to the total
deductible income of the firm. Deductible income is gross income minus deductions minus
certain exceptions. The exceptions include Subpart F income, GILTI, financial services income,
dividends from CFCs, and domestic oil and gas income.
Discussion
GILTI and FDII are related provisions, and together they are still likely to encourage the location
of intangible assets abroad, but to a lesser degree than the pre-TCJA international regime. The
exemption for tangible assets encourages the location of tangible assets abroad, but this aspect
would not be affected by the rate change. A survey of the empirical literature on the effects of the
international regime as a whole indicated a reduction in acquisitions of foreign firms, increased
investment in foreign tangible assets, no change in profit shifting beyond the effects of lowering
the corporate tax rate, a reduction in the market value of U.S. multinationals compared to
domestic firms, and no detectable effect on U.S. investment and wages.64 Other analyses have
indicated a shift of intellectual property into the United States, especially by large tech firms,
although that shift could also be affected by other factors (the lower U.S. tax rate, increased
taxation of foreign-source income, and changes in foreign tax laws, particularly in Ireland). His
analyses have showed an increase in the share of worldwide profits in the United States.65
64 Dhammika Dharmapala, The Consequences of the 2017 US International Tax Reform: A Survey of the Evidence,
CESifo Working Paper no. 10802, November 2023, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4659051#.
65 Martin Sullivan, “IP Transfers and Profit Shifting,” Tax Notes International, November 27, 2023, pp. 1229-1234;
“Reported FDII Benefits Surge for Big Tech,” Tax Notes International, December 6, 2021, pp. 1077-1080; and “What
Will It Take to Get Big Pharma Profits Into the United States?,” Tax Notes International, March 11, 2024, pp. 14451449.
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The method of calculating GILTI and FDII may also affect incentives for where multinational
corporations locate fixed investments (such as a new facility). Recall that the GILTI tax is levied
on a business’s foreign-source income in excess of 10% of the business’s tangible assets.
Therefore, a business subject to the GILTI tax would realize tax savings by increasing foreign
tangible assets. Also recall that the FDII deduction allows a deduction for the amount by which
sales to foreigners exceed 10% of domestic tangible assets. Therefore, a business would
maximize its FDII deduction (holding foreign sales constant) by minimizing domestic tangible
assets. Therefore, for businesses affected by GILTI and FDII, these provisions may provide
incentives that encourage foreign investment and discourage domestic investment.66
Increases in the rates would bring tax rates more in line with the global minimum tax currently
adopted by most other countries and reduce the amount of tax collected by other countries on
both U.S.-source and foreign-source income under the undertaxed profits provisions that permit
countries to tax affiliates in their countries to bring the tax rate up to the minimum 15% rate,
scheduled to go into effect in 2025.
Increase Rates for the Base Erosion and Anti-Abuse Tax (BEAT)
The Base Erosion and Anti-Abuse Tax (BEAT) enacted in the TCJA imposes a minimum tax
equal to 10% of the sum of taxable income and base erosion payments on corporations with
average annual gross receipts of at least $500 million over the past three tax years and with
deductions attributable to outbound payments exceeding a specified percentage of the taxpayer’s
overall deductions. The rate is 5% for payments in 2018, and 12.5% for taxable years beginning
after December 31, 2025. (Taxpayers that are members of an affiliated group that includes a bank
or registered securities dealer are subject to an additional increase of 1 percentage point in the tax
rates.) Base erosion payments include payments to related foreign parties for which a deduction is
allowable under IRC Chapter 1, the purchase of depreciable or amortizable property, certain
reinsurance payments, and payments to inverted firms or foreign persons who are a member of an
affiliated firm that includes the inverted firm that became inverted after November 9, 2017 (but
not firms that continue to be treated as U.S. firms). Cost of goods sold would not be included, and
cost of services would not be included if determined under the services cost method under the
transfer pricing rules in Section 482. Disallowed interest under Section 163(j) would be first
allocated to unrelated parties. A related person is a person who owns at least 25% of the taxpayer
or parties controlled by the same interests. All firms under common ownership are aggregated
with common ownership if one firm (such as a parent) has more than 50% ownership. The
research credit and 80% of three credits (including the low-income housing credit and certain
energy credits) are allowed to reduce the BEAT tax by comparing it to the regular tax without
reducing it by these credits. After 2025, the regular tax will be reduced by all credits.
The JCT estimated that extending this provision through 2034 would gain $21 billion.
BEAT liability turned out to be considerably less than originally estimated, totaling $1.9 billion in
2020, compared projections of revenue of $13.3 billion in the 2017 score.67 This difference may
have been due to regulatory interpretations that favored the taxpayer.68
66 This discussion partially follows Kimberly A. Clausing, “U.S. International Corporate Taxation after the Tax Cuts
and Jobs Act,” Journal of Economic Perspectives, vol. 38, no. 3 (Summer 2024): p. 96.
67 JCT, Estimated Budget Effects of The Conference Agreement for H.R.1, The Tax Cuts and Jobs Act.
68 Revenues for 2020 are reported in JCT, Background And Analysis Of The Taxation Of Income Earned By
Multinational Enterprises, JCX-35R-23, July 17, 2023, https://www.jct.gov/publications/2023/jcx-35r-23/.
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BEAT was aimed at profit shifting by increasing the cost of payments made to foreign affiliates,
both U.S. parents of foreign subsidiaries and foreign-owned U.S. subsidiaries. This is the only
provision that can address profit shifting out of the United States by foreign multinationals. In
2018, the only year in which IRS data are available, the firms that paid the most BEAT were in
manufacturing (50%); finance and insurance (17%); professional, scientific, and technical
services (10%); and information (7%).
Author Information
Jane G. Gravelle, Coordinator
Senior Specialist in Economic Policy
Donald J. Marples
Specialist in Public Finance
Anthony A. Cilluffo
Analyst in Public Finance
Brendan McDermott
Analyst in Public Finance
Mark P. Keightley
Specialist in Economics
Disclaimer
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Congressional Research Service
R48286 · VERSION 7 · UPDATED
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