As we approach the sunset of key provisions within the Tax Cuts and Jobs Act (TCJA) of 2017, a national conversation has reemerged—one that could profoundly impact American households, businesses, and the economy at large. The Council of Economic Advisers (CEA) recently released its analysis of the potential consequences of either extending or allowing the TCJA’s expiring provisions to lapse. While the report stems from the current administration’s policy framework, its implications transcend political lines and warrant a close look—especially for investors seeking stability amid fiscal uncertainty.
What’s at Stake?
Among the most impactful expiring provisions:
- Individual tax rate reductions will phase out, raising marginal tax rates across income brackets.
- The standard deduction will shrink by nearly half.
- The child tax credit is set to fall from $2,000 to $1,000 per child.
- Small businesses stand to lose the 20% pass-through deduction under Section 199A.
- Full expensing of capital investments will be eliminated.
- Opportunity Zone incentives will disappear, potentially curtailing investment in distressed communities.
These elements were originally crafted to spur economic growth, reduce tax burdens, and stimulate private investment—especially among small businesses and middle-income families.
What the CEA Predicts
Using a supply-side analytical framework and updated empirical data, the CEA forecasts that extending these provisions could:
- Increase long-run real GDP by 2.6% to 3.2%
- Boost short-term GDP by 3.3% to 3.8%
- Raise real wages by up to $3,300 per worker
- Protect or create over 4 million full-time jobs
- Inject $100 billion+ into Opportunity Zones, supporting housing and employment in underserved areas
From a historical perspective, these projections align with post-TCJA trends from 2017 to 2019, when real GDP outpaced pre-legislation forecasts and real median household income reached record highs.
Parsing Policy Through a Portfolio Lens
At Moran Wealth Management®, we believe clarity in policy could contribute to clarity in portfolio construction.
Regardless of whether these provisions are extended, several implications stand out:
- If extended: A lower tax environment could support continued capital formation, hiring, and real wage growth. This may be particularly supportive for U.S.-centric equities and small-cap businesses, which are sensitive to domestic tax incentives and regulatory changes. It also reinforces our thesis that pro-growth policies often result in elevated GDP expectations—and could benefit cyclical sectors and select real estate opportunities, such as those linked to revitalized Opportunity Zones.
- If expired: The expiration may introduce contractionary effects, particularly through reduced consumer spending and business investment. A potential rise in individual and business tax liabilities could slow earnings growth and dampen risk appetite. In that scenario, companies with high-quality balance sheets, municipal bonds for tax efficiency, and defensive equity positions could be interesting.
A Note on Deficit Concerns
Critics argue that extension may pressure the federal budget. The CEA acknowledges this concern but points to robust post-TCJA revenue trends, noting that revenue as a share of GDP remained consistent due to economic growth rather than tax rate hikes. While this analysis suggests no immediate revenue “crisis,” the broader question of federal spending discipline remains an important macroeconomic variable—especially for interest rate and inflation trajectories.
Our Position: Be Ready, Not Reactive
Our approach to asset management is grounded in preparation. Policy decisions—particularly those with fiscal implications—are inherently fluid. While we monitor developments in Washington closely, our proprietary models remain adaptive, enabling us to rebalance portfolios considering shifting tax regimes, wage expectations, and capital market behavior.
For clients concerned about their personal tax liability or how their portfolio might respond to these possible changes, we invite you to contact us. Together, we can chart a course that is responsive, resilient, and aligned with your financial goals.
If you’d like to read the full analysis from The Counsel of Economic Advisers, please click here: The Economic Impact Of Extending Expiring Provisions Of The Tax Cuts And Jobs Act.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions.
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