Congress has less than two years to prevent tax hikes on the vast majority of Americans. The Tax Cuts and Jobs Act (TCJA) of 2017, a tax reform law that simplified individual income taxes and reduced tax rates across the income spectrum, is set to expire. If Congress does nothing, most Americans will face higher taxes, worse incentives for work and investment, and a more complicated tax system starting in 2026.
The TCJA reduced average tax rates for taxpayers at all income levels because it lowered marginal tax rates, widened tax brackets, doubled the child tax credit, and made several other changes. However, not every change the TCJA made was a tax cut. For instance, placing a $10,000 cap on itemized deductions for state and local taxes paid increased taxable income for higher-income taxpayers living in high-tax states. Despite this, the net effect of all changes taken together was to reduce average tax burdens.
In 2017, the year before the new tax changes took effect, the bottom half of taxpayers paid an average tax rate of 4.0 percent. After the TCJA took effect in 2018, the average tax rate for the bottom half dropped to 3.4 percent. Similarly, the average tax rate paid by the top 1 percent of taxpayers decreased from 26.8 percent in 2017 to 25.4 percent in 2018. Average rates declined across all income groups and have remained below their 2017 levels since.
Our tax calculator tool helps demonstrate how the expiration or extension of the TCJA could affect taxpayers in different scenarios in 2026. The calculator allows users to compare how different sample taxpayers fare or to input a custom taxpayer. The tax calculator compares tax liability under two scenarios for tax year 2026. First, the calculator shows a taxpayer’s liability if Congress extends the TCJA. Next, the calculator shows a taxpayer’s liability if Congress does nothing and allows the TCJA to expire. The difference between the two illustrates the tax increase (or, in rare cases, decrease) a taxpayer would see if the TCJA expires. You can access this tool at taxfoundation.org/calculator.
It’s important to note that the Tax Foundation’s tax calculator is intended as an illustrative tool for the estimation of the TCJA’s impact on example taxpayers. It does not fully represent all potential tax scenarios and liabilities and should not be used for tax preparation purposes. The tax calculator is for educational use only.
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