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The Trump tax cuts are set to expire later this year, and that poses a real challenge for policymakers, businesses and taxpayers alike. Americans face a $4 trillion tax hike as key provisions of the 2017 Tax Cuts and Jobs Act sunset. The stakes are too high to ignore, and it has to be done right.

Failure to make most of the cuts permanent would be detrimental to economic growth, something we can ill afford. And while Republicans control the White House, House and Senate, the path is fraught with political and fiscal obstacles.

For budgetary reasons, the tax reductions were made temporary. These included lowering individual income tax rates, nearly doubling the standard deduction, increasing the child tax credit from $1,000 to $2,000, placing a $10,000 cap on the state and local tax, or SALT, deduction, and significantly increasing the exemption amount for the estate tax. Without legislative action, these provisions will revert to their pre-2018 levels.

In addition, the TCJA's full expensing provision allowed businesses to immediately deduct 100% of the cost of certain capital investments, such as equipment and machinery, instead of spreading the deduction over several years. Its phaseout has already begun, and it is set to be eliminated by 2027.

Not extending the tax cuts could be harmful for just about everyone. First, the cuts have proven their ability to foster GDP growth. In 2018, the economy achieved 3% annualized growth, with periods nearing 4%, even amid trade tensions and tariff wars. This underscores the significant role of a friendly tax climate in creating a robust economy.

The TCJA's expiration also threatens a significant number of jobs. The National Association of Manufacturers estimates that 6 million could be lost, which would have devastating ripple effects across the economy. The corporate tax reform eventually yielded larger revenue growth than expected after the legislation was passed, according to the Congressional Budget Office.

A new paper by Jonathan Hartley, Kevin Hassett and Josh Rauh found that by reducing the cost of capital for businesses (a product of the full expensing provision and lower corporate tax rates), the TCJA led to increases in investment which were even larger than previously thought. Industries that saw the largest tax cuts invested the most in the years following the reform. Specifically, a 1% reduction in investment costs resulted in a 1.27% to 2.39% increase in investment, again showing how tax policy can strengthen U.S. businesses and drive economic growth.

In fact, according to the Tax Foundation, the TCJA incentivizes companies to reinvest domestically, bolstering U.S. productivity, innovation and competitiveness. The end of expensing would threaten these advances.

Despite the Republican trifecta and economic merits of a TCJA extension, there are significant hurdles. The soon-to-be $40 trillion national debt and an impending debt-ceiling battle complicate the extension debate. Some Republicans are demanding offsets, and I hope they succeed.

The $10,000 SALT deduction cap remains particularly contentious. In 2017, it caused over a dozen House Republicans to vote against the TCJA. Today, with a slimmer GOP majority, blue-state Republicans with high local tax burdens still demand relief. GOP leadership has shown willingness to compromise by raising the cap, but this could cost $1 trillion. And President Donald Trump has reversed positions on key TCJA provisions, including the SALT cap, which could weaken party unity and complicate negotiations.

As for passing extensions, the budget reconciliation process, used successfully with the TCJA in 2017, offers a viable path. It allows tax, spending and debt-limit legislation to pass by simple majority and bypass Senate filibusters, and could be deployed again.

However, reconciliation comes with limitations and requires careful drafting. For example, the "Byrd rule," a Senate guideline, restricts extraneous provisions that do not directly impact the federal budget, meaning any unrelated measures would be stripped out.

Additionally, narrow majorities in both chambers mean every vote counts, leaving precious little room for Republican dissent. Reaching consensus will require delicate negotiations to balance diverse priorities, such as cutting the corporate rate further, paying for cuts by closing tax loopholes, or eliminating inefficient tax carveouts.

Given so many challenges, party unity will require strong leadership and the right combination of compromises. It's unclear whether the GOP will have that.

Extending and making permanent the TCJA is crucial. Its track record of boosting GDP and spurring domestic investment is hard to dispute. While the political and fiscal obstacles are real, legislators can secure the benefits for future generations while maintaining the integrity of America's fiscal house.

Veronique de Rugy is the George Gibbs Chair in Political Economy and a senior research fellow at the Mercatus Center at George Mason University. To find out more about Veronique de Rugy and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.

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