President Biden recently tweeted "That tax cut is going to expire. If I’m reelected, it’s going to stay expired."
Many key provisions of the Tax Cuts and Jobs Act (TCJA) will sunset on December 31, 2025 unless Congress and the President act to extend this law. Here, we focus exclusively on provisions of the TCJA that beginning in 2017 saved more than thirty million U.S. taxpayers from spending hundreds of millions of hours rummaging through their checkbooks and personal computers to collect tax filing information to calculate itemized deductions. We focus on how these same key tax provisions saved that same thirty million taxpayers billions of dollars in tax return preparation fees.
The TCJA increased the standard deduction for married individuals from $13,000 to $24,000 and for single individuals from $6,500 to $12,000. The TCJA simultaneously limited the deduction for state and local taxes to $10,000.
The number of tax returns itemizing tax deductions declined from roughly 47 million taxpayers in 2016 to 15 million taxpayers in 2017 as the result of the TCJA.
Without the TCJA, these thirty million taxpayers would have spent countless millions of hours wrestling with their personal data trying to find and maximize their itemized deductions every year for the past seven years. This aggravation of data collection would have reduced the amount of time spent on something each of these taxpayers would have enjoyed more than preparing their tax returns. If each of these taxpayers had spent only three hours on preparing their tax return information for itemized deductions, each year these taxpayers would have annually lost ninety million hours of their lives. Using California’s fast food minimum hourly wage, these taxpayers would have “worked” on their tax returns at a value of just under $2 billion per year.
Of course, many if not most of these roughly thirty million taxpayers would determine that rather than trying to “master” the archaic concepts of properly determining itemized deductions, they would have hired professional tax return preparers. (Perhaps most already used professional tax preparers and the completion of itemized deduction forms would ‘only’ have added to the cost of their tax preparation fees.
At just $150 per tax return, taxpayers would have annually spent an additional $4.5 billion to complete their 2017 through 2023 tax returns. (Over $30 billion over seven years.)
And those new 87,000 employees of the Internal Revenue Service will be standing by ready to review the itemized deduction schedules included in their 2026 income tax returns. Taxpayers will get to pay five times for the return of itemized deductions: the value of their time to prepare the information, the cost of professional fees, the cost of the federal government needing to review the forms, the cost of the ensuing audits and the cost of any assessments.
When the reality of causing thirty million taxpayers to again begin filing tax returns with itemized deductions, up will pop the issue of lost itemized deductions for state and local taxes which almost exclusively impacts wealthy taxpayers in states with high state tax rates. The TCJA reduced the deduction for state and local taxes to $10,000 while increasing standard deductions. The combination of these two changes ensured that all but 15 million wealthy taxpayers would itemize their 2017 tax returns.
The limitation on the deductibility of state and local taxes for the first time since 1913, insured that wealthy taxpayers in high tax states (New York, New Jersey, California etc.) would pay the same federal income tax on adjusted gross income as wealthy taxpayers in lower tax states (Florida, Texas etc.) This, an interesting act of fairness.
Congress will have a binary choice: (1) Continue to have a high standard deduction that results in thirty million taxpayers not needing to complete tax returns including itemized deductions or (2) allowing the TCJA to expire and returning to a smaller standard deduction which allows the deductibility of state taxes for wealthy taxpayers in high tax states.