The upcoming year will see a critical decision about the extension of President Donald Trump’s 2017 tax law, the Tax Cuts and Jobs Act (TCJA), as its provisions are set to expire in 2025. The extension of the TCJA without finding ways to pay for it could exacerbate the nation’s debt trajectory, which is already on an unsustainable path. While debt is not necessarily a bad thing, excessive debt can lead to economic issues such as crowding out private investment and higher interest rates, ultimately making the country poorer over time. The current law predicts that the GDP will grow faster than interest rates until 2034, but extending the TCJA without “payfors” could flip interest rates above growth within the next decade, posing a significant risk. The solution proposed by the incoming Trump administration involves finding ways to pay for a TCJA extension, with one possibility being a destination-based cash flow tax (DBCFT) that exempts investment and offers a lower rate compared to tariffs. The article emphasizes the importance of addressing the debt crisis in a way that minimizes economic damage and ensures a stable fiscal outlook. The decision made in the upcoming year could have a significant impact on the country’s economy, and it is crucial to approach it with careful consideration.
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