Removing tax policy barriers can help businesses and individuals invest, work, create jobs, and lift the economy during a post-pandemic recovery without requiring lawmakers to create new spending programs. One of the most cost-efficient options available to lawmakers is to make permanent and expand the full expensing of capital investment.
While tax rates matter to businesses, so too does the measure of income to which those tax rates apply. Depreciation understates investment costs, overstates business profits, and reduces the after-tax return on the investment—resulting in less capital formation, productivity growth, and economic output. In other words, depreciation requires businesses to pay tax on income that doesn’t exist.
Removing the tax code’s bias against long-term investment by implementing a neutral cost recovery system (NCRS) for structures and full expensing for other assets is estimated to increase economic growth and job creation. Using the Tax Foundation General Equilibrium Model, we estimate that permanent full expensing and neutral cost recovery for structures will add more than 1 million full-time equivalent jobs to the long-run economy and boost the long-run capital stock by 13 percent, or $4.8 trillion.
Download Expensing Primer Download Toolkit Learn more with TaxEDU
Lawmakers should use the year ahead to thoroughly review and debate lasting, fundamental tax reform and prioritize policies that best boost work and investment incentives in a fiscally responsible manner.
4 min read
Policymakers actively marginalized the manufacturing sector by saddling them with cost recovery rules that prevent them from deducting the full cost of investment in physical plant and equipment. Going forward, policymakers should avoid haphazard fixes, targeted measures, and protectionism.
50 min read
Though providing permanent R&D expensing alone would not be a China-competition magic bullet, it is a no-brainer place to start. In this technological race, we should first make sure we have not tied our own shoes together.
4 min read
We estimate that moving to permanent full expensing and neutral cost recovery for structures would add more than 1 million full-time equivalent jobs to the long-run economy and boost the long-run capital stock by $4.8 trillion.
4 min read
Cost recovery is the way the tax code permits firms to recover (or deduct) the cost of making investments. Cost recovery plays an important role in defining a business’ taxable income and can impact investment decisions.
Studies have shown that accelerated depreciation helps increase wage growth. A recent report found that states that implemented accelerated depreciation in their tax codes led to a 2.5 percent increase in compensation per employee in manufacturing, relative to states that did not.
3 min read
How capital assets are accounted for in the tax code dramatically affects what is defined as taxable income and, thereby, directly influences the cost of capital. The higher the cost, the less capital is formed, and the slower the economy will grow.
2 min read
While tax rates matter to businesses, so too does the measure of income to which those tax rates apply. The corporate income tax is a tax on profits, normally defined as revenue minus costs. However, under the current tax code, businesses are unable to deduct the full cost of certain expenses—their capital investments—meaning the tax code is not neutral and actually increases the cost of investment.
3 min read
Permanent full expensing for all types of investment is an effective policy change lawmakers can use to encourage additional investment and economic growth.
9 min read
Policymakers should broaden and make permanent full expensing for additional asset classes and pursue structural reforms that reduce distortions in how businesses are taxed. A more consistent and predictable policy environment, paired with targeted improvements to loss treatment, R&D incentives, and compliance burdens, would give small business owners greater confidence to invest, hire, and grow.
The past decade’s record suggests that countries have reliable legislative methods to improve their tax systems through ordinary tax reforms.
22 min read
The OBBBA significantly boosted economic prospects by improving the treatment of investment. By making key expensing provisions permanent, the OBBBA created better conditions for long-term growth. However, there’s still work to be done, and the OBBBA provided a blueprint for policymakers to follow.
4 min read
Some form of improved cost recovery for structures—whether full expensing, expensing with a per-unit cap, neutral cost recovery, or simply shortening the asset life of residential structures—is one of the most powerful pro-housing supply options available to federal policymakers.
5 min read
AI is everywhere, and now it’s in the tax policy debate.
Ohio’s SB 9 will boost economic growth by conforming Ohio’s tax code to the domestic research and experimentation (R&E) immediate cost recovery provision in the One Big Beautiful Bill Act.
8 min read
The variety of approaches to taxation among European countries creates a need to evaluate these systems relative to each other. For that purpose, we have developed the European Tax Policy Scorecard—a relative comparison of European countries’ tax systems.
55 min read
Near-term corporate tax payments may fall, and financial statement data may appear unusual, but over time, revenues will stabilize, book-tax gaps will fade, and the US tax code will incentivize domestic investment.
8 min read
Our analysis of the major tax provisions included in the OBBBA finds it will increase long-run GDP by 0.7 percent. The major tax provisions will reduce federal tax revenue by nearly $5.2 trillion between 2025 and 2034, on a conventional basis.
12 min read
The tax code is ripe for simplification, especially as complicated and targeted provisions expire in 2028.
4 min read
Over the long run, OBBBA’s permanent extension of lower marginal tax rates on work, saving, and investment lays a solid foundation for stronger economic growth.
6 min read
Corporate tax reform can strengthen Chile’s economic growth at a minimal revenue cost by reinstating full expensing and adopting a territorial tax system to align its cross-border rules with the international standard.
5 min read
For the past 12 years, the International Tax Competitiveness Index has examined which countries have truly embraced tax competitiveness and which ones have lagged behind. Our experts examine how country rankings have changed over time and identify the largest movers and shakers.
5 min read
In this episode, we break down what the OBBBA did, walk through our projections, and zoom out to other defining fights of 2025: Trump’s “Liberation Day” tariffs, the Supreme Court challenge over presidential tariff power, and the growing wave of property tax revolts across the states.
Short FormThe recently enacted One Big Beautiful Bill Act (OBBBA) is certainly big, but is it “beautiful”? Many provisions in the OBBBA will have noticeable impacts on individual taxpayers, including some that are beneficial to your wallet.
4 min read
The State Tax Competitiveness Index enables policymakers, taxpayers, and business leaders to gauge how their states’ tax systems compare. While there are many ways to show how much state governments collect in taxes, the Index evaluates how well states structure their tax systems and provides a road map for improvement.
122 min read
Expensing for manufacturing structures is a significant step forward for the tax treatment of structures, but it could be improved in several ways.
7 min read
While there are many factors that affect a country’s economic performance, taxes play an important role. A well-structured tax code is easy for taxpayers to comply with and can promote economic development while raising sufficient revenue for a government’s priorities.
93 min read
Canada has the power to shape its own competitiveness by making itself an attractive destination for investment this 2025 budget season.
The industry breakdown of the OBBBA corporate tax cuts shows firms in industries involved with tangible production, such as manufacturing, are the biggest winners, as measured by changes in tax liability.
3 min read