Tax Policy & the 2026 Elections

The Tax Cuts and Jobs Act, signed by President Trump in December 2017, was the largest overhaul of the US tax code in 30 years. Its corporate provisions — most notably cutting the corporate tax rate from 35% to 21% — were made permanent. But most of the individual-side provisions were deliberately given a 10-year sunset to comply with Senate budget reconciliation rules, meaning they expire at the end of December 2025.

What expires without Congressional action: the expanded standard deduction ($29,200 for married couples reverts to roughly half), reduced individual income tax rates (top rate goes from 37% back to 39.6%), the doubled child tax credit ($2,000 drops back to $1,000), expanded Alternative Minimum Tax exemptions, and the higher estate tax exemption (~$14M per individual reverts to ~$7M). The pass-through income deduction (Section 199A) allowing self-employed individuals and S-Corp owners to deduct 20% of qualified business income also expires.

The nonpartisan Tax Policy Center estimates that full expiration would raise taxes on approximately 62% of US households, with middle-income households seeing an average tax increase of roughly $1,700 per year. High-income households face a larger dollar increase, but middle-class families see the most politically significant impact on after-tax income.

Sources: AP-NORC Center for Public Affairs Research, Gallup Economy and Finance Survey, Pew Research Center 2023-2024.

Senator Elizabeth Warren's wealth tax proposal — first introduced during the 2020 Democratic primary — called for a 2% annual levy on net worth above $50 million and a 3% surcharge above $1 billion. The proposal entered mainstream tax debate and exposed a striking gap between public opinion (strong support) and expert opinion (significant skepticism).

The case for a wealth tax: Wealth concentration in the United States has reached levels not seen since the Gilded Age. The top 0.1% of households own more wealth than the bottom 80% combined. Income taxes do not reach unrealized capital gains — a billionaire who holds appreciated stock pays no income tax on that appreciation until they sell. A wealth tax would tax the stock of accumulated wealth, not just the annual flow of income, addressing a structural gap in the tax code.

The case against: Most European countries that implemented wealth taxes — Sweden, France, Germany, Denmark — eventually repealed them after experiencing capital flight, asset valuation disputes, and lower-than-projected revenue. The US Constitution may require wealth taxes to be "apportioned" among states by population, potentially creating a legal challenge. Annual valuation of illiquid assets (private businesses, real estate, art) is administratively complex and disputed.

The Republican-controlled Congress in 2025 faces a fundamental fiscal constraint: making the TCJA individual provisions permanent would add an estimated $3.5-4.0 trillion to the national debt over 10 years, according to the Congressional Budget Office. Under reconciliation rules — which Republicans need to pass tax legislation without Democratic votes — they must offset the cost or find enough Republicans comfortable with that level of deficit expansion.

The political dynamics within the Republican conference are complex. Fiscal hawks in the House Freedom Caucus resist open-ended deficit expansion. Moderate Republicans in suburban swing districts, sensitive to deficit concerns from affluent constituents, worry about extending the top-rate cuts while tariff revenues fall short of projections. Rural Republicans want the estate tax exemption and Section 199A pass-through deduction extended to protect farm operations and small businesses.

Democratic messaging frames any TCJA extension as a "tax cut for the wealthy" — technically imprecise (middle-class provisions are the most politically significant) but effective shorthand in an environment where 68% of Americans already oppose tax cuts for the wealthy. Democrats are expected to run hard against any extension that does not pair top-rate cuts with corresponding new taxes on corporations or high earners.

Tax policy rarely moves voters in the same visceral way that immigration or abortion does. But in 2026, the TCJA expiration makes tax policy unusually direct: millions of households may notice a tangible change in their take-home pay or tax refund. The political salience of taxes rises sharply when the change is felt personally.

Suburban swing districts — the central 2026 battleground — are particularly interesting on taxes. Affluent suburban voters, many of whom were harmed by the TCJA's $10,000 SALT deduction cap (which hit high-tax blue-state homeowners), have been a Democratic-leaning swing demographic since 2018. They are simultaneously the voters most affected by top-rate extensions, SALT caps, and estate tax provisions. Democrats have won significant House seats in suburban districts partly by running against the TCJA's SALT cap.

SALT deduction restoration — allowing state and local tax deductibility above $10,000 — polls well in high-cost states like California, New York, and New Jersey, and some Republicans in those delegations may demand SALT relief as a condition of any TCJA extension bill. This creates an internal Republican tension that could complicate the path to a unified tax bill.