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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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11.19.2025

Why Tariff Dividends Could Weaken the Economy: An In-depth Analysis

Update Why Tariff Dividends May Burden the Economy: A Critical Examination The U.S. economy is bracing for a significant policy shift as President Trump's proposal for $2,000 "tariff dividends" for low- and middle-income Americans raises questions about fiscal viability. While the intention behind these payments is to support financially strained households, a closer look reveals that the implementation of such dividends could cost considerably more than the revenue generated from new tariffs. Understanding the Financial Landscape of Tariff Dividends According to recent analyses, the cost of implementing these dividend designs could range from $279.8 billion to a staggering $606.8 billion. In stark contrast, the tariffs themselves are estimated to generate about $158.4 billion in 2025, with another $207.5 billion in 2026. Thus, even the most frugal dividend plans would quickly exhaust the incoming revenue, leaving little to offset budget deficits or fund public services. Tariff Dividends vs. Revenue Generation: The Numbers Don't Add Up The proposal models three key options for the $2,000 payments. Each option, however, reflects a systemic flaw: the total projected cost of providing dividends would outstrip revenues from tariffs almost universally. For instance, if we consider a situation where both tax filers and their dependents qualify for the payments, the costs jump even higher, indicating a financial shortfall that policymakers need to address. Judging the Real Costs: Adding Up the True Impact The term "tariff" itself denotes taxes imposed on imported goods. These additional burdens can cause price hikes for consumers and constrain businesses, leading to diminished economic activity overall. The new tariffs, while designed to generate revenue, also risk shrinking tax bases due to the indirect taxpayer burden they present—a reality often overlooked in budgetary forecasts. A Broader Economic Perspective on Tariff Revenue From another viewpoint, the intricacies of tariff revenue reveal a reality where simply pouring funds back to citizens could aggravate the federal deficit. Estimates suggest that implementing a recurring dividend could inflate the national debt significantly over the upcoming decade—potentially pushing it beyond 134% of GDP by 2035. Such outcomes could hinder overall economic resilience as the nation struggles with historical deficit levels. Moving Towards Economic Stability In light of these findings, a more rational approach may involve reallocating tariff revenues to reduce national debt rather than issuing dividends directly to taxpayers. By prioritizing debt reduction, these revenues can contribute to creating a more stable economic environment, rather than exacerbate existing fiscal concerns. In conclusion, while the notion of tariff dividends may seem initially appealing, the long-term economic implications warrant a cautious and critical assessment. With the stakes this high, steering conversations towards alternative solutions could significantly benefit the nation’s fiscal future.

11.15.2025

Is OBBBA the Largest Tax Cut in History? A Deep Dive Analysis

Update Understanding the OBBBA: A New Era in Tax Cuts In the summer of 2025, Congress passed the One Big Beautiful Bill Act (OBBBA), heralded by some as the "largest tax cut in American history." This significant legislation aims to extend the Tax Cuts and Jobs Act (TCJA) and implement various tax reductions proposed by the administration. While the OBBBA features a projected $5 trillion reduction in federal tax revenues from 2025 through 2034, it ranks as the sixth-largest tax cut in the U.S. history relative to GDP, with an average revenue reduction of 1.4% over a ten-year budget window. Comparative Analysis: How OBBBA Falls Short of the Largest Tax Cuts Historical perspective reveals that the OBBBA, despite its size, does not surpass the Economic Recovery Tax Act of 1981 or the Revenue Acts of 1945, 1948, and 1964, which collectively reduced tax revenues by over 2% of GDP. These acts were pivotal in easing the financial burdens post-World War II and stimulating economic growth in subsequent decades. In contrast, the OBBBA, above all, maintains a modest impact in proportion to the overall economic landscape, ranking lower than many expect based on its ambitious title. Tax Benefit Distribution: Who Wins and Who Loses? While the act aims to provide widespread tax relief, studies indicate that not all taxpayers will benefit equally. Recent analyses reveal that nearly half of American households may experience minimal tax cuts of less than $100 annually. The bulk of substantial tax cuts tends to flow to upper-middle-income households, emphasizing a disparity that raises questions about the OBBBA’s claim to be the "largest" tax relief legislation. Specifically, a significant portion of tax breaks is targeted at higher-income earners who can capitalize on new deductions and credits, contrasting sharply with low-income households that might see little to no effect. Future Implications for Taxpayers and Businesses One essential takeaway from the OBBBA is its dual approach of extending tax cuts while introducing significant spending reductions alongside. This complex interaction could shape future fiscal policies and taxpayer experiences as the IRS grapples with implementing these changes amidst a diminishing workforce. These adjustments might also impact how taxpayers plan for their fiscal responsibilities moving forward, especially in sectors heavily influenced by the new tax laws. Conclusion: Is the OBBBA Really a Game Changer? While its proponents argue that the OBBBA represents a significant shift in tax policy towards favorable taxation for businesses and families alike, a closer examination suggests a more measured view. As the act becomes entrenched in public finance, its effectiveness may be judged not just by its fiscal scale but by its equitable distribution of benefits. The ongoing debates surrounding its implementation will likely influence the next steps in U.S. tax reform. Stay informed on how the OBBBA might affect you or your business by reaching out to a tax advisor for personalized insights.

11.12.2025

Should States Sacrifice R&D Incentives to Preserve Corporate Income Tax Revenue?

Update The Impact of Corporate Tax Policy on R&D Initiatives As lawmakers in various states consider altering their corporate tax structures, a crucial question arises: should we penalize research and development (R&D) to protect tax revenues? Recent analysis indicates that states, particularly those contemplating decoupling from the >One Big Beautiful Bill Act (OBBBA), risk undermining a vital component of economic growth. The move to decouple from the business expensing provisions could not only hinder R&D but also damage long-term growth prospects. Understanding the Stakes: A Snapshot of Corporate Tax Revenues The corporate income tax base has significantly expanded since the 2017 Tax Cuts and Jobs Act (TCJA), which lowered the corporate tax rate to 21%. With the introduction of immediate expensing for R&D under OBBBA, states are enjoying a broader tax base, providing them with an opportunity to stimulate investment in innovation rather than stifle it. Immediate expensing laws allow businesses to deduct their R&D costs in the year they are incurred, making it a critical component for encouraging companies to invest in innovation. R&D Credits: A Vital Tool for Economic Growth R&D tax credits remain among the most significant vehicles for encouraging domestic innovation. By allowing businesses to deduct R&D expenses, these credits help facilitate new technological advancements and improve existing processes. As highlighted by the Schaeffer Center, R&D-focused tax policies incentivize firms to engage in innovative activities that drive economic fragmentation, productivity, and growth. Balancing Tax Revenue and Innovation The conversation around incentivizing innovation through tax policy has become increasingly pertinent in light of the unique pressures facing state budgets. Decoupling from OBBBA may yield short-term tax stability at the cost of jeopardizing investments in critical sectors like biotechnology and information technology. If companies begin to perceive that R&D investments are discouraged or unfunded, they may choose to relocate innovation-heavy operations to states with more favorable tax environments. Looking Ahead: Strategies for Encouraging R&D Policymakers must recognize that protecting the corporate tax base does not have to come at the expense of innovation. Strategies can be developed to encourage businesses to invest in R&D while simultaneously addressing fiscal concerns. This includes exploring non-tax incentives that foster talent development and support for startups, which often drive novel technological advancements. Conclusion: A Call for Innovation-friendly Policies Ultimately, as states contemplate the ramifications of their tax policies, it is essential to align corporate income tax structures in a way that fosters innovation. The potential loss in R&D funding could create long-lasting negative impacts on the national economy. Instead of focusing solely on immediate tax revenue, lawmakers should consider long-term growth fueled by robust research initiatives. A balanced approach towards tax policy—one that supports corporate investment in R&D—will pave the way for sustainable economic growth.

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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