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.

Business

Ryanair raises fares after profits hit by lower ticket prices

Published

1 hour ago

May 19, 2025

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Ryanair raises fares after profits hit by lower ticket prices

Europe’s largest airline has seen annual earnings drop by 16% after cutting air fares – but revealed a price hike as it seeks to return to growth.

Ryanair reported profits after tax fell to €1.61bn (£1.35bn) for the year to 31 March, down from €1.92bn (£1.61bn) in 2024, still the second highest on record.

On average, plane tickets were 7% cheaper during this period than the 12 months before, it said.

Money blog: Secrets of a cabbie

There had been a 21% rise in fares in the year up to March 2024, which bosses had signalled was due to end.

Higher-for-longer interest rates and inflation in the first half of the year meant ticket prices had to come down, the budget carrier said.

But fares are already back on the rise, Ryanair’s chief executive Michael O’Leary said.

The airline “cautiously” expects to recover “most, but not all” of the fare decline, which he said will boost profits.

Demand for summer flights is “strong”, Mr O’Leary said, with peak fares “modestly” ahead of last year.

In recent months, that rebound has already been under way. Fares since April are on track to be “a mid-high teen per cent ahead” by the end of next month, compared with the same period last year.

That trend is expected to continue to July, August and September, Mr O’Leary said.

“While we cautiously expect to recover most, but not all of last year’s 7% fare decline, which should lead to reasonable net profit growth in 2025-26, it is far too early to provide any meaningful guidance,” he said.

“The final 2025-26 outcome remains heavily exposed to adverse external developments, including the risk of tariff wars, macro-economic shocks, conflict escalation in Ukraine and the Middle East and European air traffic control mismanagement/short staffing.”

Read more from Sky News:
UK and EU agree ‘Brexit reset’ trade deal

Passenger numbers grew to a record 200 million on the back of cheaper fares, hitting a target that had been reduced due to delays in delivering new Boeing planes.

The US manufacturer has struggled with increased regulatory oversight after a door panel blew off an Alaska Airlines plane mid-flight in January last year. Strike action by staff had added to the delays.

The forecast for passenger numbers has been reduced again. Ryanair now aims to transport 206 million passengers in this financial year.

It hopes to reach 300 million passengers by 2034 and on Monday said it still expects to receive 300 new Boeing planes by 2033.

World

Israel to allow ‘basic quantity of food’ into Gaza to avoid ‘starvation crisis’

Published

1 hour ago

May 19, 2025

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Israel to allow 'basic quantity of food' into Gaza to avoid 'starvation crisis'

Israel has said it will allow a “basic quantity of food” into the besieged enclave of Gaza to avoid a “starvation crisis” following a near three-month blockade.

Israeli Prime Minister Benjamin Netanyahu’s office said the decision was “based on the operational need to enable the expansion of the military operation to defeat Hamas“.

Gaza, where local authorities say more than 53,000 people have died in Israel’s 19-month campaign, has been under a complete blockade on humanitarian aid since 2 March.

It comes as global food security experts warn of famine across the territory and after a UN-backed report from last Monday which warned one in five people in Gaza were facing starvation.

The statement from the prime minister’s office said it would “allow a basic quantity of food to be brought in for the population in order to make certain that no starvation crisis develops in the Gaza Strip”.

“Such a crisis would endanger the continuation of Operation ‘Gideon’s Chariots’ to defeat Hamas,” it added.

“Israel will act to deny Hamas’s ability to take control of the distribution of humanitarian assistance in order to ensure that the assistance does not reach the Hamas terrorists.”

It comes after a British surgeon working in Gaza said in a video to Sky News the enclave is now “a slaughterhouse” amid Israeli bombardment.

Israel has just ramped up its offensive in Gaza – where it’s been conducting a military campaign in retaliation for 1,200 people killed and 251 taken hostage by Hamas on 7 October 2023 – with Palestinian health officials reporting at least 130 people were killed overnight into Sunday.

Israel Defence Forces (IDF) confirmed troops had begun “extensive ground operations throughout the northern and southern Gaza Strip”.

The Hamas-run health ministry in Gaza said 464 people had died in Israeli military strikes in the week to Sunday.

In a statement on Sunday, IDF said its air force struck “over 670 Hamas terror targets throughout the Gaza Strip to disrupt enemy preparations and support ground operations” over the past week.

Israel has launched an escalation to increase pressure on Hamas, seize territory, displace Palestinians to the south and take greater control over the distribution of aid.

UK

Easing trade and signing a defence pact would be manifesto promises delivered – and Starmer could use a win

Published

1 hour ago

May 19, 2025

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Easing trade and signing a defence pact would be manifesto promises delivered - and Starmer could use a win

This EU-UK summit has for months been openly billed by Sir Keir Starmer’s Downing Street as a hugely significant moment for this government.

The Labour leader promised in his 2024 election manifesto that the UK would sign a new security pact with the EU to strengthen cooperation and improve the UK’s trading relationship with the continent.

Since winning power in July, he has embarked on a charm offensive across European capitals in a bid to secure that better post-Brexit deal.

Monday is when the PM makes good on those promises at a historic summit at Lancaster House in London.

There, the EU and UK are expected to sign a security and defence partnership, which has taken on a new sense of urgency since the arrival of President Trump in the White House.

It is an agreement that will symbolise the post-Brexit reset, with the PM, European Commission president Ursula von der Leyen and European Council president Antonio Costa also signing off on a communique pledging deeper economic cooperation.

But, rather like the torturous Brexit negotiations I covered for years in London and Brussels under Conservative prime ministers, Sir Keir’s post-Brexit reset went down to the wire.

Discussions continued over night as the two sides snared up over details around fisheries, food trade and youth mobility.

It’s not that both sides did not want the reset: the war in Ukraine and the spectre of the US becoming an unreliable partner have pushed London and Brussels closer together in their common defence interest.

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Fishing and youth mobility – the two snags

But the pressure for this deal weighed more heavily on our prime minister than his European colleagues. He’s been talking for months about securing a reset and better trading relationship with the EU to bolster the UK economy.

His need to demonstrate wins is why, suggests one continental source, the Europeans let talks go to the wire, with London and Brussels in a tangle over fishing rights – key demands of France and the Netherlands – and a youth mobility scheme, which is a particular focus for Berlin.

In the end, the UK allowed EU fishing boats access to British waters 12 years.

“The British came with 50 asks, we came with two – on fishing and the youth mobility scheme,” says one European source.

EU sources say Brussels had offered a time-limited deal to lift checks on animal products – replicating London’s offer on fisheries – but the UK is reluctant to do this as it leaves too much uncertainty for farmers and supermarkets.

Scotland election weighing on talks

A deal on food products, known as sanitary and phytosanitary (SPS) goods, would be a boost for the economy, with potentially up to 80% of border checks disappearing, given the breadth of products – paint, fashion goods, leather as well as foods – with an animal component.

Any deal also means the UK would have to align with rules made in Brussels and make a financial contribution to the EU to fund work on food and animal standards.

Both elements will trigger accusations of Brexit “betrayal”, as the UK signs up as a “rule taker” and finds itself paying back into the EU for better access.

Government figures had been telling me how they are more than prepared to face down the criticisms thrown at them from the Conservatives.

But sensitivities around fishing, particularly in Scotland, where Labour is facing elections next year, weighed on talks.

The other area of huge tension was over a youth mobility scheme, which would enable young adults from member states to study and work in the UK and vice versa.

Government sources familiar with the talks acknowledge some sort of scheme will be included, but want details to be vague – I’m told it might be “an agreement about a future agreement”, while the EU sees this a one of its two core demands.

In talks late on Sunday night, the UK government appeared to be softening on re-opening the pre-Brexit Erasmus student exchange scheme as perhaps a way to get around the impasse, according to one EU source.

The UK rejoining this scheme had been rebuffed by Sir Keir last year, but was raised again last night in talks, according to a source.

Common ground on defence and security

Wherever the economic horsetrading lands, the two sides have found common ground in recent months is on defence and security, with the UK working in lockstep with European allies over Ukraine and relationships deepening in recent months as Sir Keir Starmer has worked with President Macron and others to try to smooth tensions between Kyiv and Washington and work on a European peace deal for Ukraine.

The expectation is that the two sides will sign a security partnership that will reiterate the UK’s commitment to build up the continent’s defence capability and stand united against Russian aggression with its partners.

The deal should also mean British arms companies will be able to access the EU’s €150bn rearmament programme, which has been set up to create a massive surge in defence spending over the next five years as Europe prepares itself to better repel threats.

It is clearly in neither side’s interest for Monday to go wrong.

The EU and UK need to maintain a united front and, more importantly for Keir Starmer domestically, the PM needs to show an increasingly sceptical public he can deliver on his promises.

Easing trade barriers with Britain’s biggest trading partner and signing an EU defence pact would be two manifesto promises delivered.

And with his popularity sinking to a record low in recent days, he could really do with a win.