Michigan Has the Right Idea: Keep the 2017 Federal Tax Cuts
Last week, the Michigan State Senate adopted a resolution sponsored by State Senator Jim Runestad (White Lake) calling on the United States Congress to extend the Tax Cuts and Jobs Act from 2017. This is an important call to keep pro-growth policies in place as the United States faces an uncertain and deteriorating economy.
Absent congressional action, 23 provisions of the 2017 tax cuts directly relating to individual income taxes, such as the reductions in personal income tax rates, the near doubling of the standard deduction, and the substantial reduction of the hated Alternative Minimum Tax (AMT) will expire after December 31, 2025.
Michigan has now become the second state to pass language similar to the ALEC model Resolution Urging Congress to Permanently Extend the Tax Cuts and Jobs Act of 2017, after Arizona.
The 2017 tax cuts also set an annual cap of $10,000 on the state and local tax (SALT) deduction, thereby broadening the tax base at the federal level and in many states, which caused state level budget surpluses and resulted in many states offering substantial tax relief.
If the current $10,000 cap on the SALT deduction is allowed to expire after December 31, 2025, the federal tax base will be narrowed. Returning to an unlimited SALT deduction would be an incentive for many states to once again implement higher taxes and spend at higher levels.
The 2017 Tax Cuts and Jobs Act supercharged the American economy. It resulted in a $1.5 trillion cut in taxes, on net, providing tax relief to over 100 million taxpayers. The Act resulted in record-low unemployment, increased business investment, and increased the median household income by $6,000 in the two years after its passage. Research done by the Tax Foundation has shown that the Tax Cuts and Jobs Act is a key driver of the economic recovery experienced since the pandemic crash.
Jonathan Williams, ALEC Chief Economist and Executive Vice President of Policy expressed the same sentiment:
“As hardworking taxpayers continue to suffer the damaging effects of inflation, continuing the benefits of the federal Tax Cuts and Jobs Act of 2017 is now more important than ever. These provisions include crucial changes such as the reductions in personal income tax rates, the near doubling of the standard deduction and the substantial reduction of the hated Alternative Minimum Tax. The Tax Cuts and Jobs Act of 2017 proved to be a big boost for all Americans.”
Just a few years ago, the “big boost” provided by the Tax Cuts and Jobs Act put American households in a far better position than where they were in 2007. Personal disposable income in the US rose by $1.54 trillion in 2020 compared to 2019, indicating that the effects of tax cuts far offset the decrease in consumer spending due to the pandemic.
Additionally, the lower tax burden instituted by the 2017 cuts has allowed Americans to save record amounts, nearly $5 trillion. This has allowed for low capital and financing costs for businesses and individuals alike during the worst of the pandemic. Keeping these tax cuts in place will keep Americans on stable economic footing and primed to grow our economy.
It is important to remind Congress that massive spending bills, big government, and tax increases are not the drivers of the economy. The American economy is stronger when its citizens are free from unnecessary over-taxation and government intervention. Therefore, every state should call upon the US Congress to ensure that the invaluable tax policies of the Tax Cuts and Jobs Act remain in place.