Major changes to the tax systems for companies and individuals in the United States (U.S.), brought about by the TCJA are still felt today. What was once one of the highest tax rates globally, the business tax rate lowered significantly from 35% to 21%. This change was made to increase the U.S.’ global competitiveness, thereby reducing the need for businesses to relocate their activities elsewhere. Reducing the business tax rate to 21% helped place the U.S. in the middle of the worldwide tax rate scene and prevent corporations from relocating overseas. This business tax reduction has been made permanent, which means that businesses can count on it in the future unless any new legislation changes.
It’s important to note that for individuals, the tax cuts established by the Act are not permanent; they are temporary measures that are scheduled to expire in 2026. The highest tax rate for individuals has been decreased from 39.6% to 37%, and there has been a general reduction in tax rates overall. The standard deduction rose significantly at the same time, giving many taxpayers benefits.
Not all individual taxes went down with the TCJA. Some itemized deductions, including the state and local tax (SALT) deduction, have been capped or otherwise restricted. Depending on where they live, this shift has had varied consequences for taxpayers.
The expiration of these individual tax cuts in 2026 is a key topic in the 2024 election. The incoming administration will face the important decision of whether to extend these cuts, modify them, or let them expire.
