Option 55:

Adopt a Neutral Cost Recovery System for All Structures

Topline Estimates

Gross Domestic Product (GDP)
+1.5%
Gross National Product (GNP)
+1.5%
Full-Time Equivalent Jobs
+400K
Wage Rate
+1.2%
Capital Stock
+2.8%
Conventional Primary Deficit Change (10‑Yr)
+$2.2B
Dynamic Primary Deficit Change (10‑Yr)
-$964.6B
Dynamic Total Deficit Change (10‑Yr)
-$1,121.5B

Source: Tax Foundation General Equilibrium Model.

Under current law, when a business invests in a building, it is not recognized as an expense on a business’s tax return in the same year. Instead, the business deducts a share of its cost each year over multiple decades: 39 years for commercial structures and 27.5 years for residential structures. Due to inflation and the time value of money, the present value of the deductions is worth less than the original investment cost. The only exception is manufacturing structures, which are eligible for immediate expensing until the end of 2028.

This option makes all structures eligible for a neutral cost recovery system. Businesses would still take deductions over asset lives but get to adjust those deductions for both inflation and a real rate of return to preserve the real value of deductions over time. By eliminating the tax penalty from long depreciation schedules, this option would lower the cost of capital and increase incentives to invest.

On a conventional basis, this option would increase the primary deficit by $2.2 billion over the budget window. Outside the budget window, the costs would grow as the neutral cost recovery adjustments compound. While its revenue effects are backloaded, economically, neutral cost recovery has similar effects as full expensing. Both long-run GDP and long-run GNP would rise by 1.5 percent. On a dynamic basis, the primary deficit would decrease by $964.6 billion from 2027 through 2036, $966.8 billion more than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 163.8 percent by 2056.

On average, taxpayers would see small increases in their after-tax incomes in 2036, as the conventional revenue change of the adjustments is small within the budget window. On a long-run dynamic basis, taxpayers would see a 1.5 percent increase on average.

Modeled Results

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About the Authors

Erica York Tax Foundation
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Erica York

Vice President of Federal Tax Policy

Erica York is Vice President of Federal Tax Policy with Tax Foundation’s Center for Federal Tax Policy. Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets.

Garrett Watson Tax Foundation
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Garrett Watson

Director of Policy Analysis

Garrett Watson is Director of Policy Analysis at the Tax Foundation, where he conducts research on federal and state tax policy. His work has been featured in The Washington Post, The Atlantic, Politico, the Associated Press and other major outlets.

Huaqun Li Tax Foundation
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Huaqun Li

Senior Economist, Director of Modeling Projects

Dr. Huaqun Li is Senior Economist, Director of Modeling Projects at the Tax Foundation. She focuses on developing and maintaining the Foundation’s Taxes and Growth Model, which models the budgetary and economic effects of changes to federal tax policy.

William McBride or Will McBride Tax Foundation
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William McBride

Chief Economist & Stephen J. Entin Fellow in Economics

Dr. William McBride is the Chief Economist & Stephen J. Entin Fellow in Economics at the Tax Foundation, where he oversees major research projects primarily related to reforming the federal tax code, advancing sound tax policy, and improving the federal government’s fiscal outlook.

Alex Durante Tax Foundation
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Alex Durante

Senior Economist

Alex Durante is a Senior Economist at the Tax Foundation, working on federal tax policy and model development. Alex worked as a research assistant at the Federal Reserve Board and served as a staff economist on the Council of Economic Advisers.

Alex Muresianu Tax Foundation
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Alex Muresianu

Senior Policy Analyst

Alex Muresianu is a Senior Policy Analyst at the Tax Foundation, focused on federal tax policy. Previously working on the federal team as an intern in the summer of 2018 and as a research assistant in summer 2020. He attended Tufts University, graduating with a degree in economics and minors in finance and political science.

Peter Van Ness Tax Foundation

Peter Van Ness

Research Software Developer

Peter Van Ness is a Research Software Developer at the Tax Foundation working on federal tax policy and model development. Peter previously worked as a research assistant at another think tank and as a data analyst at a consulting firm.

Aleksei Shilov Tax Foundation Research Software Developer

Aleksei Shilov

Research Software Developer

Aleksei Shilov is a Research Software developer at the Tax Foundation working on economic model development and federal tax policy. Aleksei joined the Tax Foundation as an intern in January 2025. He holds a B.S. in computer science and a minor in economics from Northeastern University and is currently based in Boston, MA.

Daniel Bunn Tax Foundation President & CEO
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Daniel Bunn

President and CEO

Daniel Bunn is President and CEO of the Tax Foundation. Daniel has been with the organization since 2018 and, prior to becoming President, successfully built its Center for Global Tax Policy, expanding the Tax Foundation’s reach and impact around the world. Prior to joining the Tax Foundation, Daniel worked in the United States Senate at the Joint Economic Committee.