House Tax Package Could Double Economic Growth Impact by Prioritizing Permanence for TCJA Business Provisions

As the House Budget Committee prepares to bundle the pieces of the House reconciliation package together, policymakers should consider ways to improve the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. package to maximize economic growth. As the current tax package stands, the House’s use of temporary policy is leaving most of the economic growth opportunities on the table.

The tax package passed out of the Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is one of 29 U.S. House of Representative committees and is the chief tax-writing committee in the U.S. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. temporarily extends the major Tax Cuts and Jobs Act (TCJA) business provisions through the end of 2029. The temporary business provisions include 100 percent bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. , expensing of research and development (R&D) investment, a more generous interest deduction limit, and a new 100 percent bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. deduction for qualifying structures. While temporary extensions of better cost recoveryCost recovery is the ability of businesses to recover (deduct) the costs of their investments. It plays an important role in defining a business’ tax base and can impact investment decisions. When businesses cannot fully deduct capital expenditures, they spend less on capital, which reduces worker’s productivity and wages. will lead to short-term economic benefits, scheduling the provisions to expire will undermine the long-term benefits.

If instead the four provisions were made permanent, they would increase long-run GDP by 1.0 percent, more than doubling the 0.6 percent long-run GDP effect of the tax package as passed by Ways and Means.

Under permanence for the cost recovery provisions, the US capital stock and worker wages would rise by 1.6 percent and 0.7 percent, respectively, rather than falling as in the current legislation. American incomes would rise by 0.9 percent, compared to a less than 0.05 percent GNP increase if the provisions are left temporary.

Making the TCJA business and structures cost recovery provisions permanent would increase the cost of the package. We estimate the package would cost about $4.6 trillion on a conventional basis over 10 years, compared to a cost of about $4.1 trillion in the current package.

Table 1. Long-Run Economic Effects of Ways and Means May 12 Tax Legislation with Permanent TCJA Business Provisions and Cost Recovery for Certain Structures

Source: Tax Foundation General Equilbrium Model, May 2025

The dynamic cost, however, only rises slightly from $3.3 trillion to $3.5 trillion over 10 years as the pro-growth revenue feedback from the permanent revenue provisions offsets part of their added conventional cost.

Table 2. Revenue Effect of Ways and Means May 12 Tax Legislation with Permanant TCJA Business Provisions and Cost Recovery for Certain Structures, Billions of Dollars

Source: Tax Foundation General Equilbrium Model, May 2025

Permanence for the four cost recovery provisions would more than double the long-run economic effect of the Ways and Means package, while increasing the 10-year conventional cost of the package by less than 14 percent and the 10-year dynamic cost by less than 6 percent.

The current package produces meager effects on GDP and a smaller US capital stock over the long run because the cost recovery provisions sunset. As lawmakers continue to debate the tax package, they should not compromise on permanence for the most pro-growth provisions.

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