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Kozi Checks & Balances TaxTactics News

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December 20.2024

2 Minutes Read

Exploring the Economic Impact of Extending the Tax Cuts and Jobs Act

TCJA extension analysis with Yuan and Dollar comparison.

Overview of Economic Analyses by CBO and JCT

The Congressional Budget Office and the Joint Committee on Taxation have released their analyses on extending the individual provisions of the Tax Cuts and Jobs Act (TCJA), set to expire at the end of 2025. These analyses are fundamental in understanding the economic implications and form part of the crucial discussions in next year’s tax policy debates.

JCT Models and Predictions

The JCT uses three main macro models to predict the economic outcomes: the Macroeconomic Equilibrium Growth Model, the Overlapping Generations Model, and the Dynamic Stochastic General Equilibrium Model. These models offer a dynamic view by projecting how extensions might affect GDP over a budget window from 2025 to 2034. JCT's findings suggest extending TCJA would reduce revenue but could provide a GDP boost, ranging from 0.2% to 0.9%, depending on the chosen model.

CBO’s Take: Growth Versus Deficit

While JCT finds a growth scenario with TCJA extension, the CBO cautions that the potential benefits could be neutralized by increasing deficits that might hinder private investments. Their analysis serves as a critical balance, ensuring policymakers consider both the economic benefits and fiscal responsibilities.

Future Implications

With current budget rules necessitating a weighted average of model results, the future of TCJA’s extension will require careful consideration of each model’s strengths and potential bias. An average GDP growth prediction of 0.5% leaves room for dynamic revenue feedback, possibly trimming extension costs significantly. Such insights highlight the importance of a nuanced approach to tax legislation, signaling a pivotal shift in fiscal policy strategies going forward.

Tax Deduction Deep-Dives

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10.07.2025

The Hidden Costs of Property Tax Repeal: Why Revenue Replacement Matters

Update Understanding the Complex Landscape of Property Tax RepealProperty taxes are the largest revenue source for local governments in the U.S., generating over 70 percent of local tax revenue, by some estimates. They primarily fund essential services like education, public safety, and infrastructure. However, dissatisfaction with property taxes prompts discussions about their elimination, leading to important questions: if property taxes are repealed, how will that lost revenue be replaced, and what are the implications for local communities?The Challenge of Revenue ReplacementReplacing property tax revenue is fraught with challenges. In various jurisdictions, local sales and income tax bases differ significantly, complicating any attempt to equalize funding. For example, an agricultural area may find itself with no viable sales tax base to harness, while urban regions might not have sufficient income tax revenue potential. As a result, any alternative tax replacements could exacerbate existing inequalities, pressing communities to grapple with deeper economic divides.Moreover, the push for local taxing authority can lead to diverse tax rates across regions. For example, Florida’s mixed local and state sales tax rates can reach as high as 15.34 percent in some counties, placing an enormous stress on local consumers. The variations don’t just threaten local economies; they also risk alienating residents from essential services that rely on tax funding.A Look at Previous Attempts and their Economic ConsequencesVarious proposals for property tax alternatives have arisen, including local income taxes and increased sales taxes. However, evidence suggests that income taxes tend to drive wealthier citizens to relocate to lower-tax regions, ultimately leading to decreased funding for local services in higher-tax areas. A study explored in the AIER highlights how recent reforms have failed to successfully replace property tax revenue without creating economic distortions. This trend can ripple out to affect businesses and residents alike, discouraging investment in crucial local services.What Lies Ahead: Future Predictions and ConsequencesDismissing property taxes can appear appealing, particularly due to their unpopularity among taxpayers. However, experts argue that any repeal must be approached with a detailed plan to replace the lost revenue. Without a systematic replacement strategy, communities risk losing funding essential for their operations.The Path Forward: Informed Decisions and Voter EngagementProponents of property tax repeal must engage in open discussions on replacement taxes, shedding light on the true cost of cancellation. Residents should have the opportunity to evaluate any new proposals thoroughly and take accountability for how funding will be structured in the future. Understanding these dynamics will empower voters to make more informed decisions that ensure sustainable community funding.The path to tax reform is challenging and riddled with complexities. But ignoring the consequences of property tax repeal could have lingering effects on community viability and growth. Engaging in this dialogue not only informs voters but also holds government accountable for the services and taxes they prioritize.

10.03.2025

How Limiting the Tax Exclusion for Employer-Sponsored Health Insurance Can Benefit Everyone

Update The Tax Exclusion for Employer-Sponsored Health Insurance: An Overview The exclusion of employer-sponsored health insurance (ESI) premiums from federal income and payroll taxes has been a long-standing practice in the U.S., dating back to World War II. This exclusion currently costs the federal government an estimated $5.9 trillion over the next decade, as projected by the Treasury Department. It incentivizes employers to provide health insurance rather than boost taxable wages, effectively encouraging higher health care outlays. Future Predictions: Revenue Implications of Limiting ESI Exclusions Recent analyses indicate that reforming the tax exclusion could generate significant federal revenue—up to $389 billion over the next decade—mainly from high earners. By limiting ESI exclusions at the 80th or 90th percentiles of premiums, policymakers could reinvigorate federal finances while tackling the rising burden of healthcare costs, which are anticipated to increase over 9% in 2026. This reform would redistribute some financial responsibility from the taxpayers back to those benefitting from generous health plans. Understanding Healthcare Subsidies: Costs and Consequences Healthcare subsidies have historically aimed to make health insurance more affordable, but their unintended consequences can inflate overall costs by boosting demand without addressing supply. The shift towards untaxed ESI benefits contributes to escalating healthcare prices, resulting in a greater financial strain on the federal budget. To tackle this, any expansion of premium tax credits must be counterbalanced by adjustments elsewhere, particularly by reducing the ESI tax exclusion. Opportunity Trends: Potential for Reform Experts from organizations such as the Tax Policy Center suggest several reform routes: outright repeal of the ESI exclusion, limiting it above certain premium levels, or substituting it with a refundable tax credit. These approaches would not only modify income distribution impacts but also address the root causes of soaring healthcare expenses. Implementing these changes could promote a more equitable tax system while potentially decreasing premiums in the long run. Why This Matters: The Broader Implications The discussion surrounding ESI exclusion reform goes beyond mere tax policy. It reflects deeper questions about healthcare access, economic equity, and the future of employer-sponsored coverage. With a reform strategy that normalizes compensation packages and curtails excessive health care costs, society can move towards a more sustainable healthcare landscape, potentially benefiting consumers and taxpayers alike.

10.02.2025

How Will the One Big Beautiful Bill Act Affect Your 2026 Taxes?

Update Understanding the OBBBA’s Impact on 2026 Taxes This summer, Congress enacted the One Big Beautiful Bill Act (OBBBA), marking a significant transformation in the U.S. tax landscape. As the largest overhaul since the Tax Cuts and Jobs Act (TCJA) of 2017, the OBBBA introduces pivotal changes set to take effect in 2026. A standout feature of this legislation is the interactive 2026 Tax Calculator, allowing taxpayers to visualize how these adjustments will affect their individual tax situations. The calculator provides a comparative analysis of personal tax liabilities under two scenarios: one reveals how the tax landscape would appear had Congress allowed earlier cuts from the TCJA to expire, while the other outlines the new tax provisions under the OBBBA. This not only clarifies the potential tax differences but also illustrates the net reduction most taxpayers can expect. A Deeper Dive: The Key Tax Changes Among the most important changes are the permanent retention of reduced marginal tax rates, an expanded standard deduction, and an increased Child Tax Credit. The OBBBA makes previously temporary tax cuts permanent, ensuring that around 62% of taxpayers avoid increases that would have occurred had the TCJA’s provisions expired. Notably, it also introduces new deductions for overtime and tip income, accommodating workers in the service industry. However, not all measures are beneficial; the bill rolls back some tax benefits, such as stricter limitations on itemized deductions like mortgage interest and the SALT deduction. For instance, while the SALT caps increase to $40,400 for most taxpayers under the new rules, they phase down for higher earners, resulting in taxable income for some in high-tax states. Implications for Average Citizens The net effect of the OBBBA allows most taxpayers to see an increase in their after-tax income, with average boosts around 5.4% overall. The bill is structured to ensure that while lower-income taxpayers might see minimal increases of about 2.6%, middle-income earners could benefit from increases as high as 6.3%. This progressive approach to tax relief provokes a discussion around equity and the role of tax law in addressing economic disparity. As Americans prepare to navigate their 2026 taxes, the OBBBA equips taxpayers with tools and insights to make informed decisions. Notably, the expanded Child Tax Credit and deductions for overtime reflect a growing recognition of the complexities of modern employment and families' financial realities. Taking Action: Stay Informed As tax policies evolve, understanding one’s tax obligations becomes increasingly crucial. Utilize tools like the Tax Foundation’s 2026 Tax Calculator to better prepare for changes ahead. With adjustments that can significantly alter your financial landscape, having a clear grasp of these developments ensures that taxpayers are not just passive recipients of policy but active players in managing their financial futures.

Exploring the Economic Impact of Extending the Tax Cuts and Jobs Act

Overview of Economic Analyses by CBO and JCT

JCT Models and Predictions

CBO’s Take: Growth Versus Deficit

Future Implications

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