Details and Analysis of The CREATE JOBS Act

July 30, 2020

Today, Senators Ted Cruz (R-TX) and Martha McSally (R-AZ) introduced the CREATE JOBS Act (Cost Recovery and Expensing Acceleration to Transform the Economy and Jumpstart Opportunities for Businesses and Startups) that would make two significant changes to incentivize investment in the United States. The proposal would prevent scheduled changes that would worsen the tax treatment of short-lived investments (primarily machinery and equipment) and research & development costs and implement a new system of cost recovery for investments in structures and buildings.

We estimate that by improving the tax treatment of capital investment, the CREATE JOBS act would grow the long-run economy by 4.0 percent, expand the capital stock by 10.1 percent, lift wages by 3.4 percent, and create more than 800,000 new full-time equivalent jobs.

Summary of the Proposal

The first part of the proposal would eliminate the phaseout of 100 percent bonus depreciation that is currently scheduled to occur between December 31, 2022 and December 31, 2026. This provision permits firms to immediately and fully deduct the costs of short-lived investments like machinery and equipment from their taxable income. Additionally, the last section of the proposal would allow businesses to continue fully and immediately deducting their Research & Development expenses.

The second section of the proposal would improve the cost recovery treatment of investments in structures and buildings by implementing a neutral cost recovery system (NCRS), providing the same economic benefit as full expensing using a different mechanism. Under the NCRS, the deductions currently taken under the 27.5- and 39-year depreciation schedules for real estate investments would be adjusted to maintain their real value over time.

The NCRS adjustment would account for both inflation (by using the GDP deflator) and the time value of money (by using a real 3 percent rate of return)—both components are necessary for the system to be equivalent to full expensing because depreciation deductions are less valuable to companies over time due to both factors. Another way to think about why both components are required is that without an adjustment, delaying depreciation deductions is akin to a company providing an interest-free loan to the government, and interest accounts for both inflation and a real rate of return.

The NCRS would apply to new structures that businesses put in place as well as the deductions that have yet to be taken going forward for structures that businesses put into place in the past.

Economic Analysis

According to the Tax Foundation General Equilibrium Model, the CREATE JOBS Act would increase the long-run size of the economy by 4.0 percent. The capital stock would expand by 10.1 percent, wages increase by 3.4 percent, and employment grow by more than 800,000 full-time equivalent jobs. The table below summarizes each section of the Act’s contribution to the long-run economic effects.

Table 1. Economic Effects of the CREATE Jobs Act
  Permanence for 100% Bonus Depreciation NCRS for Structures Cancel R&D Amortization Combined Effect
GDP 0.9% 2.9% 0.2% 4.0%
Capital Stock 2.2% 7.3% 0.6% 10.1%
Wages 0.8% 2.4% 0.2% 3.4%
Full-Time Equivalent Employment 183,000 572,000 47,000 802,000

Source: Tax Foundation General Equilibrium Model, January 2020

We estimate that on a conventional basis, the CREATE JOBS Act would reduce federal revenue by $419 billion from 2021 and 2030.

Table 2. Estimated Revenue Effects of the CREATE JOBS Act
  2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021-2030
Conventional Revenue (in billions) -$4 -$50 -$47 -$46 -$47 -$47 -$50 -$45 -$42 -$41 -$419

Source: Tax Foundation General Equilibrium Model, January 2020.


  • August 4, 2020: Conventional revenue estimate added.

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A 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.

Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.

Full expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It 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.

Depreciation 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.

Cost 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. 

Bonus 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.

Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.