Next year’s high-stakes battle over the expiring 2017 Trump tax provisions will give the incoming Congress and president an opportunity to chart a new course. By holding to the three principles listed below, they can create a tax code that’s not only fairer but also raises revenue for investments to make the economy work better for everyone.
The expiring tax cuts for people making over $400,000 should end on schedule. This is an essential step in shifting away from the regressive, costly tax cuts of recent decades. Letting these tax cuts (the tax rate cuts, special deductions, and estate tax cuts on massive inheritances) expire would avoid roughly $1.6 trillion in new costs over 10 years.
While the top 1% got large tax breaks from the 2017 law, households with incomes in the 95th to 99th percentiles (roughly $400,000 to $1 million) did even better: Their tax cut averaged 3.2% of their pre-tax income in 2025, more than triple the average gain for households with incomes in the bottom 60%. They also benefited from the law’s permanent corporate tax cuts, which are tilted even more toward the wealthy than the expiring individual tax cuts.
We should raise more revenue to finance tax cut extensions or new investments. The costly 2017 tax law followed the even costlier 2001 and 2003 Bush tax cuts. Together, they have seriously eroded our revenue base.
Before the Bush tax cuts, revenue stood at roughly 20% of the gross domestic product, and this was when Baby Boomers were in their prime working years. But after the Bush and Trump tax cuts, revenue fell to roughly 17% of GDP, and now the Boomers are heading deeper into retirement, which will raise Social Security and Medicare costs. We must begin to reverse this revenue erosion starting in 2025.
Congress should raise revenue to pay for tax cuts they extend or expand for those with incomes below $400,000, as well as other high-value investments they make. Added revenue could also be used to improve our fiscal outlook.
Given the rise in inequality in the past few decades—incomes rose three times faster for the top 1% than for typical middle-income families between 1984 and 2019—this new revenue should come from wealthy people and profitable corporations.
For example, we should scale back the 2017 corporate tax cuts and strengthen rules aimed at preventing multinationals from shifting their profits to foreign tax havens. We should require the very wealthiest people to pay some annual income tax on their unrealized capital gains, which often are never taxed. (Middle-class people, in contrast, often face taxes on their unrealized gains.) And we should give the IRS the funding it needs to improve tax enforcement and customer service.
We should make new investments that prioritize people with low or moderate incomes. The US underinvests in people, communities, and building blocks of the economy in ways that limit opportunity, widen inequality, and worsen racial and ethnic inequities. We can afford to do much more.
For example, we should invest more in children. Today, 19 million children—including about one in four children overall, nearly half of Black children, and a third of Latino children—receive only a partial child tax credit or none because their parents’ incomes are too low. These are the very children whose families most need help. Research shows that boosting the incomes of low-income families pays off for children in everything from health and educational achievement to earnings in adulthood.
The 2021 expansion of the child tax credit temporarily fixed this flaw and increased the maximum credit for low- and middle-income families alike. It was a tremendous success. Surveys showed families used the expanded credit for basics such as food and rent, and child poverty plummeted. But the expansion’s expiration reversed this progress.
We should invest more in health care. Thanks to improvements in the premium tax credits for coverage through the Affordable Care Act marketplaces, plans are more affordable than ever before. As a result, marketplace enrollment rose from 12 million in 2021 to 21 million in 2024, with the greatest gains among Black, Latino, and low-income people. But those improvements will expire, causing steep premium increases for nearly all enrollees after 2025 unless Congress acts.
We should invest more in workers who do important jobs but are paid low wages. This year, six million workers with incomes around the poverty line or below will be made worse off by federal taxes, mostly because the earned income tax credit for workers not raising children in their home is so small.
The 2021 expansion of the “childless EITC” largely eliminated this problem of taxing people into (or deeper into) poverty, but Congress let it expire. Restoring it would help millions of workers—cashiers, cooks, janitors, personal care aides, childcare workers, and people in countless other occupations. Workers also need to be able to balance work and family obligations through affordable childcare, care for seniors and disabled family members, and paid leave.
We also should invest more in housing. More than 80% of renter households earning less than $30,000 pay over 30% of their income for housing, the federal standard of affordability. Rental assistance is a proven way to help people afford housing, but because of limited funding it reaches just one in four households who need it.
Increasing the supply of housing, and those strategies must be coupled with rental assistance so households with low incomes can afford the housing available in their communities also should be prioritized.
In short, next year policymakers can help make the US a stronger, more equitable nation by raising revenue from those who have gained the most over recent decades and making new investments to address national problems and expand opportunity. They should seize the chance.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Chuck Marr is vice president for federal tax policy at the Center on Budget and Policy Priorities, a Washington, D.C. think tank that promotes federal and state policies to reduce poverty and inequality.
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