Brace for Big Tax Hikes in 2026 Unless Congress Acts

Published

1 year ago

May 14, 2024

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Most Americans face tax hikes starting in 2026, and the increased federal tax bite will come about without Congress lifting a finger. That’s because 2017’s Tax Cuts and Jobs Act (TCJA) expires at the end of 2025, and despite some politicians’ contrary claims, a majority of Americans benefited from that law. The end of tax cuts for so many people necessarily results in corresponding increases to come.

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Δ Tax Cuts for Most, but With a Time Limit

“Unless Congress acts, the vast majority of Americans will see higher, more complicated taxes beginning in 2026 as major provisions from the Tax Cuts and Jobs Act of 2017 expire,” warns the Tax Foundation. “The TCJA reduced average tax burdens for taxpayers across the income spectrum and temporarily simplified the tax filing process through structural reforms. It also boosted capital investment by reforming the corporate tax system and significantly improved the international tax system.”

The widespread benefits of the TCJA shouldn’t be a matter for debate. But there’s confusion because Team Biden and fans of high taxes fibbed about the law leading up to the 2020 presidential election.

“Biden’s false claim that no one but the rich got Trump’s tax cuts,” headlined a 2019 Washington Post Glenn Kessler piece about the debate over the law. “Most Americans received a tax cut,” he added.

“About 65 percent of households paid less in individual income taxes in 2018 as a result of the TCJA,” wrote the Tax Policy Center’s Howard Gleckman. “About 6 percent paid more. The rest paid about the same.”

Adjusting for all federal taxes under pre-TCJA law, the Cato Institute’s Chris Edwards commented, “lower? and middle??income groups received the largest relative individual income tax cuts.”

So, there’s widespread agreement that a law which cut taxes for most Americans is poised to expire, resulting in higher taxes. But, just as the benefits of the tax cuts varied across the population, so will the size of the bite taken by tax increases starting in 2026. Tax Hikes for All

“The largest average tax hikes would be experienced by taxpayers who reside in California’s congressional districts,” note the Tax Foundation’s Garrett Watson and Erica York. “For example, the congressional district covering the San Francisco area would see an average tax hike of $16,127 per taxpayer, the highest in the U.S. By contrast, northern New York City would see an average tax increase of $807 per taxpayer under TCJA expiration.”

That link takes you to a tool that lets you look up the estimated impact of TCJA expiration on taxpayers in states and congressional districts across the country.

Separately, the Tax Foundation published a tax calculator that lets you estimate the impact of TCJA expiration on you and your family, given specifics such as marital status, income, number of children, and choice of standard or itemized deductions. The calculator accounts for “most aspects of the federal individual income tax code except provisions related to business and self-employed income.”

That said, extending the TCJA’s tax cuts has high costs of its own since that would reduce the amount of money collected by the federal government to spend on its projects. Tax Cuts and Tradeoffs

“Federal tax revenues would fall by more than $4 trillion on a conventional basis and by nearly $3.5 trillion on a dynamic basis over the coming decade; and without spending cuts, debt and deficits would increase,” concedes a May Tax Foundation report on options regarding the law.

“By the year 2050, permanent extension of TCJA laws would reduce federal revenues from 18.4 percent to 17.1 percent of annual Gross Domestic Product (GDP),” Jagadeesh Gokhale and Mariko Paulson of the University of Pennsylvania’s Penn Wharton Budget Model specify. “Federal debt held by the public would rise from 226.0 percent of GDP to 261.1 percent by 2050.”

But that decrease in revenue and corresponding rise in debt and deficits may matter only if it hampers a serious plan to control the federal government’s ongoing spending spree. Separately, the Penn Wharton Budget Model predicts that “a maximum debt-GDP ratio of 200 percent can be sustained even if investors believe (maybe myopically) that a closure rule will then prevent that ratio from increasing into the future.” They say the real ceiling on federal debt is more like 175 percent of GDP before the financial markets entirely lose faith in the U.S. economy. Debt as a percentage of GDP above that point is disastrous, whether at 226 percent or 261 percent.

It makes sense, then, for Americans to submit to significant tax hikes only if those increases go to balancing the federal budget, eliminating deficits, and controlling debt. Otherwise, we’re going to pay more for what is essentially the same very bad outcome. A Need for Serious Reform

Benefits of extending the TCJA, on the other hand, operate independent of faith in a sudden surge in responsibility among the political class. Extending the law’s provisions “would boost long-run GDP by 1.1 percent and employment by 913,000 full-time equivalent jobs,” according to the Tax Foundation.

For extending the TCJA, the Tax Foundation considers two options, both including modifications that seek to reduce the hit to federal revenues while maximizing gains for individuals. Option 2, for example, “broadens the individual income tax base by ending the income tax exclusion for employer-provided fringe benefits, most notably health insurance.”

That’s a matter of tweaking the current system around the edges to maintain relief for individuals and a faster-growing economy. Tax Foundation experts also propose possible fundamental changes, including entirely dumping the income tax system in favor of a consumption tax. That has the potential to significantly boost personal income as well as GDP and reduce the national debt. Of course, the gains really apply only if the government also reduces spending.

But such fundamental reform is a lot to ask of a political class that spent us into a corner and now wants tax hikes so there’s even more of our money to spend. Letting the TCJA expire requires placing enormous faith in people who got us into a fiscal mess to begin with.

Fundamental reforms to the federal government’s finances are absolutely necessary. Until that happens, we should resist stealth tax hikes so we can keep our hard-earned money for ourselves.

Politics

I’ve followed the PM wherever he goes in his first year in office – here’s what I’ve observed

Published

42 mins ago

July 4, 2025

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I've followed the PM wherever he goes in his first year in office - here's what I've observed

July 5 2024, 1pm: I remember the moment so clearly.

Keir Starmer stepped out of his sleek black car, grasped the hand of his wife Vic, dressed in Labour red, and walked towards a jubilant crowd of Labour staffers, activists and MPs waving union jacks and cheering a Labour prime minister into Downing Street for the first time in 14 years.

Starmer and his wife took an age to get to the big black door, as they embraced those who had helped them win this election – their children hidden in the crowd to watch their dad walk into Number 10.

Politics latest: Corbyn starts new party

Keir Starmer, not the easiest public speaker, came to the podium and told the millions watching this moment the “country has voted decisively for change, for national renewal”.

He spoke about the “weariness at the heart of the nation” and “the lack of trust” in our politicians as a “wound” that “can only be healed by actions not words”. He added: “This will take a while but the work of change begins immediately.”

A loveless landslide

That was a day in which this prime minister made history. His was a victory on a scale that comes around but one every few decades.

He won the largest majority in a quarter of a century and with it a massive opportunity to become one of the most consequential prime ministers of modern Britain – alongside the likes of Margaret Thatcher or Tony Blair.

But within the win was a real challenge too.

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Starmer’s was a loveless landslide, won on a lower share of the vote than Blair in all of his three victories and 6 percentage points lower than the 40% Jeremy Corbyn secured in the 2017 general election.

It was the lowest vote share than any party forming a post-war majority government. Support for Labour was as shallow as it was wide.

In many ways then, it was a landslide built on shaky foundations: low public support, deep mistrust of politicians, unhappiness with the state of public services, squeezed living standards and public finances in a fragile state after the huge cost of the pandemic and persistent anaemic growth.

Put another way, the fundamentals of this Labour government, whatever Keir Starmer did, or didn’t do, were terrible. Blair came in on a new dawn. This Labour government, in many ways, inherited the scorched earth.

The one flash of anger I’ve seen

For the past year, I have followed Keir Starmer around wherever he goes. We have been to New York, Washington (twice), Germany (twice), Brazil, Samoa, Canada, Ukraine, the Netherlands and Brussels. I can’t even reel off the places we’ve been to around the UK – but suffice to say we’ve gone to all the nations and regions.

What I have witnessed in the past year is a prime minister who works relentlessly hard. When we flew for 27 hours non-stop to Samoa last autumn to the Commonwealth Heads of Government Meeting (CHOGM) summit, every time I looked up at the plane, I saw a solitary PM, his headlight shining on his hair, working away as the rest of us slept or watched films.

He also seems almost entirely unflappable. He rarely expresses emotion. The only time I have seen a flash of anger was when I questioned him about accepting freebies in a conversation that ended up involving his family, and when Elon Musk attacked Jess Phillips.

I have also witnessed him being buffeted by events in a way that he would not have foreseen. The arrival of Donald Trump into the White House has sucked the prime minister into a whirlwind of foreign crises that has distracted him from domestic events.

When he said over the weekend, as a way of explanation not an excuse, that he had been caught up in other matters and taken his eye off the ball when it came to the difficulties of welfare reform, much of Westminster scoffed, but I didn’t.

I had followed him around in the weeks leading up to that vote. We went from the G7 in Canada, to the Iran-Israel 12-day war, to the NATO summit in the Hague, as the prime minister dealt with, in turn, the grooming gangs inquiry decision, the US-UK trade deal, Donald Trump, de-escalation in the Middle East and a tricky G7 summit, the assisted dying vote, the Iran-Israel missile crisis.

He was taking so many phone calls on Sunday morning from Chequers, that he couldn’t get back to London for COBRA [national emergency meeting] because he couldn’t afford to not have a secure phone line for the hour-long drive back to Downing Street.

He travelled to NATO, launched the National Security Review and agreed to the defence alliance’s commitment to spend 5% of GDP on defence by 2035. So when he came back from the Hague into a full-blown welfare rebellion, I did have some sympathy for him – he simply hadn’t had the bandwidth to deal with the rebellion as it began to really gather steam.

Dealing with rebellion

Where I have less sympathy with the prime minister and his wider team is how they let it get to that point in the first place.

Keir Starmer wasn’t able to manage the latter stages of the rebellion, but the decisions made months earlier set it up in all its glory, while Downing Street’s refusal to heed the concerns of MPs gave it momentum to spiral into a full-blown crisis.

The whips gave warning after 120 MPs signed a letter complaining about the measures, the Work and Pensions Secretary Liz Kendall had done the same, but Starmer and Reeves were, in the words of one minister, “absolutist”.

“They assumed people complaining about stuff do it because they are weak, rather than because they are strong,” said the minister, who added that following the climbdown, figures in Number 10 “just seemed completely without knowledge of the gravity of it”.

That he marks his first anniversary with the humiliation of having to abandon his flagship welfare reforms or face defeat in the Commons – something that should be unfathomable in the first year of power with a majority that size – is disappointing.

To have got it that wrong, that quickly with your parliamentary party, is a clear blow to his authority and is potentially more chronic. I am not sure yet how he recovers.

Keir Starmer said he wanted to rule country first, party second, but finds himself pinned by a party refusing to accept his centrist approach. Now, ministers tell MPs that there will be a financial consequence of the government’s decision to delay tightening the rules on claiming disability benefits beyond the end of 2026.

A shattered Rachel Reeves now has to find the £5bn she’d hoped to save another way. She will defend her fiscal rules, which leaves her the invidious choice of tax rises or spending cuts. Sit back and watch for the growing chorus of MPs that will argue Starmer needs to raise more taxes and pivot to the left.

That borrowing costs of UK debt spiked on Wednesday amid speculation that the chancellor might resign or be sacked, is a stark reminder that Rachel Reeves, who might be unpopular with MPs, is the markets’ last line of defence against spending-hungry Labour MPs. The party might not like her fiscal rules, but the markets do.

What’s on the horizon for year two?

The past week has set the tone now for the prime minister’s second year in office. Those around him admit that the parliamentary party is going to be harder to govern. For all talk of hard choices, they have forced the PM to back down from what were cast as essential welfare cuts and will probably calculate that they can move him again if they apply enough pressure.

There is also the financial fall-out, with recent days setting the scene for what is now shaping up to be another definitive budget for a chancellor who now has to fill a multi-billion black hole in the public finances.

But I would argue that the prime minister has misjudged the tone as he marks that first year. Faced with a clear crisis and blow to his leadership, instead of tackling that head on the prime minister sought to ignore it and try to plough on, embarking on his long-planned launch of the 10-year NHS plan to mark his year in office, as if the chancellor’s tears and massive Labour rebellions over the past 48 hours were mere trifles.

It was inevitable that this NHS launch would be overshadowed by the self-inflicted shambles over welfare and the chancellor’s distress, given this was the first public appearance of both of them since it had all blown up.

But when I asked the prime minister to explain how it had gone so wrong on welfare and how he intended to rebuild your trust and authority in your party, he completely ignored my question. Instead, he launched into a long list of Labour’s achievements in his first year: 4 million extra NHS appointments; free school meals to half a million more children; more free childcare; the biggest upgrade in employment rights for a generation; and the US, EU and India free trade deals.

I can understand the point he was making and his frustration that his achievements are being lost in the maelstrom of the political drama. But equally, this is politics, and he is the prime minister. This is his story to tell, and blowing up your welfare reform on the anniversary week of your government is not the way to do it.

Is Starmer failing to articulate his mission?

For Starmer himself, he will do what I have seen him do before when he’s been on the ropes, dig in, learn from the errors and try to come back stronger. I have heard him in recent days talk about how he has always been underestimated and then proved he can do it – he is approaching this first term with the same grit.

If you ask his team, they will tell you that the prime minister and this government is still suffering from the unending pessimism that has pervaded our national consciousness; the sense politics doesn’t work for working people and the government is not on their side.

Starmer knows what he needs to do: restore the social contract, so if you work hard you should get on in life. The spending review and its massive capital investment, the industrial strategy and strategic defence review – three pieces of work dedicated to investment and job creation – are all geared to trying to rebuild the country and give people a brighter future.

But equally, government has been, admit insiders, harder than they thought as they grapple with multiple crises facing the country – be that public services, prisons, welfare.

It has also lacked direction. Sir Keir would do well to focus on following his Northern Star. I think he has one – to give working people a better life and ordinary people the chance to fulfil their potential.

But somehow, the prime minister is failing to articulate his mission, and he knows that. When I asked him at the G7 summit in Canada what his biggest mistake of the first year was, he told me: “We haven’t always told our story as well as we should.”

I go back to the Keir Starmer of July 5 2024. He came in on a landslide, he promised to change the country, he spoke of the lack of trust and the need to prove to the public that the government could make their lives better through actions not words.

In this second year, he is betting that the legislation he has passed and strategies he has launched will drive that process of change, and in doing so, build back belief.

But it is equally true that his task has become harder these past few weeks. He has spilled so much blood over welfare for so little gain, his first task is to reset the operation to better manage the party and rebuild support.

But bigger than that, he needs to find a way to not just tell his government’s story but sell his government’s story. He has four years left.

Politics

Did Keir Starmer screw up his own anniversary?

Published

42 mins ago

July 4, 2025

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Did Keir Starmer screw up his own anniversary?

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Sir Keir Starmer wanted to be talking about what he sees as Labour’s achievements after 12 months in government and his 10-year plan for the NHS.

But, after another dramatic policy U-turn and the sight of his own chancellor crying at PMQs, when he kept his support for her slightly vague, Beth Rigby, Harriet Harman and Ruth Davidson discuss if his start in office has been shattered by this week.

They also wonder if the solution to make relations with his own MPs a bit easier would be to make better use of Angela Rayner.

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World

Gaza aid group reacts to claims American contractors fired at starving Palestinians

Published

42 mins ago

July 4, 2025

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Gaza aid group reacts to claims American contractors fired at starving Palestinians

Israeli-backed American contractors guarding aid centres in Gaza are using live ammunition and stun grenades as starving Palestinians scramble for food, an investigation has claimed.

The Associated Press has reported the accounts by two contractors from the Gaza Humanitarian Foundation (GHF), although the organisation has strongly denied the allegations, describing them as “categorically false”.

GHF was established in February to deliver desperately needed aid to people in the besieged enclave, but its work has been heavily criticised by international aid groups.

It has also been subject to intense scrutiny about its operations, which Sky News previously reported are associated with a significant increase in deaths.

AP’s claims, which have not been independently verified by Sky News, came from GHF contractors who spoke on condition of anonymity as they were revealing their employer’s internal operations.

They said they were motivated to speak out as they were disturbed by what they considered dangerous practices by security staff who were often heavily armed.

AP reported the contractors had claimed “their colleagues regularly lobbed stun grenades and pepper spray in the direction of the Palestinians” and “bullets were fired in all directions – in the air, into the ground and at times toward the Palestinians, recalling at least one instance where he thought someone had been hit”.

Contractor: ‘Innocent people being hurt’

“There are innocent people being hurt. Badly. Needlessly,” the contractor told AP.

Videos reportedly provided by one contractor show aid sites, located in Israeli military-controlled zones, with hundreds of Palestinians crammed between metal gates, scrambling to reach aid.

In the background, gunfire can be heard, and stun grenades are allegedly fired into crowds.

The footage does not show who was shooting or what was being shot at, but another video shows contractors in a compound, when bursts of gunfire can be heard. One man is then heard shouting in celebration: “Whoo! Whoo!”.

“I think you hit one,” another says, followed by the comment: “Hell, yeah, boy!”

The contractor who took the video told AP that colleagues were shooting in the direction of Palestinians.

According to the Hamas-run Gaza Health Ministry and witnesses, several hundred people have been killed and hundreds more wounded since the GHF sites started operating more than a month ago, amid claims by Palestinians of Israeli troops opening fire almost every day at crowds seeking to reach the aid.

In response, Israel’s military says it fires only warning shots and is investigating reports of civilian harm. It denies deliberately shooting at any innocent civilians and says it’s examining how to reduce “friction with the population” in the areas surrounding the distribution centres.

GHF attacks ‘false claims’

GHF has vehemently denied the accusations, adding that it has investigated AP’s allegations.

In a statement on X, GHF wrote: “Based on time-stamped video footage and sworn witness statements, we have concluded that the claims in the AP’s story are categorically false. At no point were civilians under fire at a GHF distribution site.

“The gunfire heard in the video was confirmed to have originated from the IDF, who was outside the immediate vicinity of the GHF distribution site.

“It was not directed at individuals, and no one was shot or injured. What is most troubling is that the AP refused to share the full video with us prior to publication, despite the seriousness of the allegations.”

Safe Reach Solutions, the logistics company subcontracted by GHF, told the AP there have been no serious injuries at any of their sites to date.

But the organisation admitted that, in isolated incidents, security professionals fired live rounds into the ground and away from civilians to get their attention.

A Safe Reach Solutions spokesperson told AP this happened at the start of their operations at “the height of desperation where crowd control measures were necessary for the safety and security of civilians”.