Congress’s Costly Tax Breaks: Why Most Americans Aren’t Biting—and What Investors Should Do

The U.S. Congress has long championed tax cuts as a tool to stimulate economic growth, but a glaring paradox is emerging: lawmakers are prioritizing tax breaks that few Americans actually claim. From the Lifetime Learning Credit (LLC) to extensions of the 2017 Tax Cuts and Jobs Act (TCJA), these provisions are either too narrowly designed or face structural barriers that limit their uptake—despite costing taxpayers billions. For investors, this mismatch between intent and execution signals risks in sectors tied to these policies and opportunities in areas where fiscal priorities are misaligned.

The LLC’s Limited Reach

Take the Lifetime Learning Credit (LLC), a provision aimed at easing education costs. While the 2024 Economic Report projects a 12% rise in LLC claims to 1.45 million taxpayers in 2025—a modest increase—the credit remains niche. The average benefit of $2,100 per claimant pales compared to the $13.99 million estate tax exemption or $19,000 annual gift exclusion, which cater to high-net-worth individuals. Even with expanded eligibility for part-time students, the LLC’s non-inflation-adjusted income thresholds (up to $80,000 for single filers) disqualify many middle-income families, as inflation has eroded eligibility since 2020.

The TCJA’s Expired Potential

The TCJA’s expiring provisions, set to sunset in 2025, exemplify Congress’s misplaced priorities. These cuts deliver $61,000 annually to the top 1% (households earning over $743,000) while offering $400 to the bottom 60%. Yet even among the wealthy, uptake is constrained. The Alternative Minimum Tax (AMT) exemptions, for instance, apply only to households earning over $626,350 (single filers), a tiny slice of the population. The Tax Foundation estimates extending these provisions would cost $4.5 trillion by 2034, yet their benefits remain inaccessible to most.

The IRS Cuts: A Silent Tax Haven

Republicans’ push to repeal IRS funding increases exacerbates the divide. By weakening enforcement, these cuts shield wealthy taxpayers who underreport income, while low-income families—reliant on programs like Medicaid—bear the brunt of offsetting spending cuts. The $1.2 trillion annual tariff cost on middle-income households (due to Trump-era policies) further limits the “benefit” of minimal tax breaks.

Racial and Economic Disparities

The TCJA’s extensions also deepen racial inequities. Communities of color, disproportionately represented in lower-income brackets, gain little from tax cuts skewed toward the affluent. Meanwhile, states like California—where 18% of LLC claims originate—benefit more than others, reflecting geographic disparities in education access and wealth.

Investment Implications

1. Avoid Overexposure to Expensive Tax Loopholes: Sectors reliant on expiring TCJA provisions, such as luxury real estate (mortgage interest deductions) or private equity (estate tax exemptions), face uncertainty. A $13.99 million estate tax exemption may attract high-net-worth clients today, but its expiration could crater demand.
2. Focus on Equity Plays: Invest in companies addressing education gaps, such as Coursera (COUR) or Chegg (CHGG), which benefit from the LLC’s niche growth. However, caution is warranted—LLC’s $2,100 average credit is insufficient to offset rising tuition.
3. Monitor IRS Enforcement Trends: Reduced IRS funding could boost demand for tax preparation services (e.g., Intuit (INTU), parent of TurboTax) as complexity grows.

Conclusion: A Fiscal Crossroads

Congress’s tax agenda is a house divided: policies designed to favor the wealthy rarely reach their intended targets, while middle-class families face stagnant benefits and rising costs. With $4.5 trillion at stake in TCJA extensions and $1.2 trillion in annual tariff burdens, investors must prioritize sectors insulated from fiscal missteps. The LLC’s projected growth and AMT’s narrow reach underscore a system where tax breaks are more symbolic than substantive. For now, the safest bets are in education technology, tax prep tools, and companies unshackled from expiring loopholes—until Congress finally aligns its priorities with reality.