October 5, 2024 09:00 AM PDT
(PenniesToSave.com) – With the 2024 presidential election approaching, one of the most critical issues for American families is the potential expiration of the 2017 Tax Cuts and Jobs Act (TCJA). Set to expire in 2026, the TCJA dramatically reshaped tax rates, deductions, and credits, all of which will revert to previous levels if no action is taken. As voters head to the polls, Donald Trump proposes extending the cuts, while Kamala Harris aims to let them expire. Both positions could significantly affect your family’s finances.
What is the TCJA and Why Does It Matter?
The 2017 Tax Cuts and Jobs Act lowered tax rates across all income brackets, increased the standard deduction, and expanded the child tax credit. For middle-class and working families, this meant more take-home pay and reduced taxable income. However, these cuts are set to expire at the end of 2025 unless extended. If allowed to lapse, families will face higher taxes, reduced deductions, and a shrinking child tax credit—meaning less money in their pockets.
For example, the child tax credit, which was raised to $2,000 per qualifying child, would drop to $1,000 per child if the TCJA expires, significantly impacting larger families. Similarly, the standard deduction would shrink, meaning more income would become taxable.
Higher Taxes for Families if the TCJA Expires
If the TCJA is allowed to expire, tax brackets will shift upwards, translating to higher taxes for families. For a middle-class household, this could mean hundreds or even thousands more in taxes each year. The standard deduction will decrease, meaning more of your income will be taxed. For instance, a married couple currently benefiting from the higher $27,700 standard deduction could see that drop to around $12,000, making a significant portion of their income taxable once again.
Families with children would also feel the pain through the reduction of the child tax credit. Currently set at $2,000 per child, it would revert to $1,000 under pre-TCJA rules, reducing tax refunds for millions of households.
Trump’s Proposal: Extend the TCJA
Donald Trump’s tax plan is clear: he wants to extend the provisions of the TCJA indefinitely. Under his plan, families would continue to benefit from the lower tax rates, higher standard deductions, and the expanded child tax credit. A typical middle-income family could save thousands of dollars over time by avoiding the automatic tax hikes set for 2026.
Proponents argue that extending these tax cuts would provide long-term relief for working families. The Congressional Budget Office (CBO) estimates that extending the TCJA could save middle-class households anywhere from $1,000 to $3,000 per year, depending on income and family size.
However, extending these tax cuts would increase the national debt, potentially leading to future cuts in government services that many families rely on, such as education and healthcare subsidies.
Harris’s Proposal: Let the TCJA Expire
Kamala Harris’s tax proposal aims to let the TCJA expire, arguing that the tax cuts disproportionately benefit wealthy individuals and corporations. By allowing taxes to revert to pre-2017 levels, Harris believes the federal government will have more resources to invest in social programs, such as education, healthcare, and childcare.
For families, this means higher tax rates and a reduction in key tax benefits like the child tax credit. Harris’s camp argues that while some families may pay more in taxes, government programs funded through the additional revenue could offset some of these increases through expanded access to healthcare, education, and childcare subsidies.
Critics of this approach warn that the financial burden of higher taxes would outweigh the benefits for many middle-income families, who could lose thousands of dollars in tax savings each year.
Final Thoughts
As the 2024 election looms, tax policy is set to become a major issue that could affect the financial health of millions of families. Whether Trump’s plan to extend the TCJA or Harris’s approach to let it expire prevails, it’s clear that family finances will be impacted by the outcome. It’s important for families to stay informed and plan for potential changes by consulting financial advisors and adjusting their savings and investments accordingly.