The upcoming expiration of the Tax Cuts and Jobs Act (TCJA) at the end of 2025 has sparked debates in Congress about the future of family-related tax policies. It is crucial for members of Congress to understand how the different components of the TCJA reforms were interconnected rather than isolated changes. In a series of blog posts by the Tax Foundation, the focus is on reviewing the holistic approach of the TCJA towards family-related tax policies.
Before the TCJA came into effect in 2018, there were three major family provisions—standard deduction, personal exemptions, and the child tax credit (CTC). Taxpayers could reduce their taxable income by either itemizing deductions or claiming a standard deduction. Additionally, personal exemptions and the child tax credit provided further relief based on specific criteria.
The TCJA revamped these provisions by consolidating them into a more substantial child tax credit and nearly doubling the standard deduction amount. This consolidation had a significant impact on the structure of the individual income tax, making it more favorable for lower- and middle-income families. The expanded child tax credit, in particular, benefited a wider range of income levels.
Following the TCJA reforms, the child tax credit was further expanded during the COVID-19 pandemic through the American Rescue Plan Act (ARPA). These changes included increasing the maximum credit, providing additional amounts for younger children, and altering the calculation method for the credit. However, discussions arose regarding the impact of these changes on work incentives, with concerns about reducing work incentives by eliminating certain requirements.
Looking ahead to 2025, lawmakers are expected to face tighter budgetary constraints compared to 2017. The reforms to family-related tax provisions under the TCJA present a model for addressing these constraints by offsetting costs with simplifications and less distortionary base broadenings. As lawmakers revisit the TCJA, they must consider the interconnectedness of the provisions and aim to create a tax reform package that is simple, fosters growth, and remains fiscally responsible.
