On Thursday, I joined with more than 300 economists from universities, think tanks, and businesses across the country to convey a message to the American people: “It is in Americas economic interest to extend President Trumps tax cuts permanently to prevent a tax increase on Jan. 1, 2026.”
Our open letter to President Trump, House Speaker Mike Johnson, and Senate Majority Leader John Thune, signed by some of the countrys most prominent economic theorists and practitioners, warns that “failure to extend the tax cut will lead to a job-killing $4 trillion tax hike on American families and small businesses. Given the softening of the economy this year, a quick extension of the Trump tax cut could help avert a recession.”
Allowing federal taxes to increase as scheduled under current law would lead to less-than-desirable outcomes. Wells Fargo estimates, for example, that average monthly job creation nationally would slow dramatically from 133,000 last quarter (Q1) to 25,000 next quarter before turning negative (-17,000) in the final quarter of the year.
If Congress fails to “spike the hike,” Wells Fargo estimates economic growth will slow to a tepid 1.1% both this year and next. Meanwhile, the Congressional Budget Office produced a relatively more optimistic – but still pathetic – growth forecast, with real GDP growing at an average annual rate of 1.8% over the coming decade.
Policymakers concerned with the size and persistence of the federal budget deficit must realize that the quickest way to balloon the deficit further is by allowing the U.S. economy to stall or, even worse, slip into outright recession.
Douglas Holtz-Eakin, CBO director from 2003 to 2005, cautions, “Given the weak state of the economy, it [the scheduled tax increase] would likely trigger a recession, and the budget outlook never gets better in a recession.”
Taking into account the expected positive impact of the presidents economic policies, President Trumps Council of Economic Advisers reports, “The 3.0 percent annual real GDP growth forecast under the Administrations policies is projected to result in $4.1 trillion in additional revenue over the next 10 years relative to the CBOs GDP growth projections that assume the expiration of TCJA.”
Thats $4 trillion in deficit reduction stemming entirely from more robust economic growth.
If the fear of recession and larger budget deficits isnt bad enough, the non-partisan Tax Foundation writes that if Congress fails to extend the Tax Cuts & Jobs Act (TCJA), “most Americans will face higher taxes … and a more complicated tax system starting in 2026.”
Why higher taxes? TCJA significantly increased the standard deduction and slashed marginal tax rates, both of which revert to their pre-2018 levels next year. Permanently extending the individual provisions of the TCJA would reduce taxes, relative to current law, on 62% of filers, with only 9% of filers seeing higher taxes in 2026.
Moreover, as we wrote in our letter, TCJA “succeeded in making the tax system more pro-growth and fairer. The common attack that this was a tax cut ‘for millionaires and billionaires is contradicted by IRS data showing the share of taxes paid by the rich went UP, not down, after passage of TCJA.”
Why more complicated? TCJA reduced the number of tax filers ensnared by the Alternative Minimum Tax from roughly 8 million to roughly half a million. It also reduced the number of tax filers who itemize their deductions from more than 33% to closer to 9%.
As Treasury Secretary Scott Bessent recently tweeted, “A $4 trillion tax hike next year would devastate American businesses and families. President Trump is committed to preventing that, and over 300 leading economists agree.”
Indeed, we do.
It has long been quipped that if all the economists were laid end to end, theyd never reach a conclusion. Our conclusion, however, is unequivocal: “To help the economy grow and to help working-class Americans, Congress should permanently extend the Trump tax cuts with a sense of urgency.”
James Carter is a principal with Navigators Global. He previously headed President-elect Donald Trump’s tax team during the 2016-17 transition and served as a deputy assistant secretary of the Treasury for President George W. Bush.
