Prioritizing Permanence: How Making TCJA Business Tax Cuts Permanent Could Double Economic Growth 32   Recently updated !

 in News  tagged bonus depreciation / business tax / cost recovery / Economic Growth / GDP / interest deduction / job creation / permanent tax policy / R&D expensing / Tax Cuts and Jobs Act / tax foundation / tax package / tcja / wages by (updated 9 days ago)

As the House Budget Committee moves forward with assembling the various components of the House reconciliation package, a crucial opportunity exists to significantly enhance its economic growth potential. The current iteration of the tax package, heavily reliant on temporary policy, leaves substantial economic benefits unrealized.

The tax legislation approved by the Ways and Means Committee includes temporary extensions of key business provisions from the Tax Cuts and Jobs Act (TCJA) through the end of 2029. These temporary measures encompass:

  • 100 percent bonus depreciation: Allowing businesses to immediately deduct the full cost of eligible property.
  • Expensing of research and development (R&D) investment: Permitting businesses to deduct R&D expenditures in the year they are incurred.
  • A more generous interest deduction limit: Easing restrictions on the amount of interest expense businesses can deduct.
  • A new 100 percent bonus depreciation deduction for qualifying structures: Enabling immediate expensing for certain newly constructed or improved buildings.

While these temporary enhancements to cost recovery offer short-term economic boosts, their scheduled expiration undermines potential long-term gains.

The Power of Permanence: Doubling Long-Run GDP Growth

According to Tax Foundation analysis, making these four critical business provisions permanent, instead of temporary, would have a significantly more profound impact on the economy. Permanent implementation would increase long-run GDP by 1.0 percent, more than doubling the current package’s projected 0.6 percent long-run GDP effect.

The benefits of permanent cost recovery extend beyond GDP growth:

  • Increased Capital Stock and Worker Wages: Under permanent policies, the U.S. capital stock would rise by 1.6 percent, and worker wages would increase by 0.7 percent. This contrasts sharply with the current legislation, which projects a decline in both.
  • Higher American Incomes: American incomes would see a 0.9 percent increase with permanent provisions, a substantial improvement over the less than 0.05 percent GNP increase projected under the temporary framework.
  • Job Creation: Permanent implementation is estimated to create 1,054,000 full-time equivalent (FTE) jobs in the long run, significantly higher than the 794,000 jobs projected with the current temporary measures.

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

Provision GDP GNP Capital Stock Wages FTE Jobs
Ways and Means Package Individual and Estate Tax Provisions 0.4% 0.7% -0.6% -0.2% 739,000
Ways and Means Package International Provisions 0.2% 0.2% 0.4% 0.2% 58,000
Ways and Means Package Misc. Business Provisions < -0.05% -0.1% -0.1% < -0.05% -3,000
Subtotal, Ways and Means Package 0.6% 0.8% -0.2% -0.1% 794,000
Permanent Domestic R&D Expensing 0.1% 0.1% 0.2% 0.1% 30,000
Permanent 100% Bonus Depreciation 0.6% 0.5% 1.0% 0.5% 153,000
Permanent 100% First Year Bonus for Qualifying Structures 0.2% 0.2% 0.4% 0.2% 52,000
Permanent 30% of EBIT to EBITDA 0.1% 0.1% 0.2% 0.1% 25,000
Subtotal, Permanence for Business Investment Provisions 1.0% 0.8% 1.8% 0.8% 260,000
Deficit Impact on American Incomes 0.0% -0.7% 0.0% 0.0% 0
Total, Ways and Means Package Plus Permanence for Business Investment Provisions 1.6% 0.9% 1.6% 0.7% 1,054,000

Fiscal Implications: A Worthwhile Investment in Growth

Making the TCJA business and structures cost recovery provisions permanent would entail an increased fiscal cost. The Tax Foundation estimates that the overall package would cost approximately $4.6 trillion on a conventional basis over 10 years, compared to the current package’s estimated cost of $4.1 trillion.

However, the dynamic cost, which accounts for economic feedback, only rises slightly from $3.3 trillion to $3.5 trillion over the same period. This is because the pro-growth revenue generated by the permanent business provisions partially offsets their added conventional cost.

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

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2025-2034
Ways and Means Package Individual and Estate Tax Provisions -127.5 -492.5 -537.5 -535.1 -430.2 -446.6 -467.0 -487.5 -494.0 -519.7 -4,537.8
Ways and Means Package International Provisions 0.0 -22.7 -23.8 -21.5 -22.5 -22.9 -24.3 -26.5 -27.7 -25.4 -217.0
Ways and Means Package Misc. Business Provisions and IRA Credit Changes 0.0 38.8 45.2 48.7 57.0 69.9 73.3 86.7 56.5 59.2 535.4
Ways and Means Package JCT Scored Items -1.3 8.2 26.4 31.5 33.1 28.9 21.9 15.1 15.9 37.5 217.2
Permanent Domestic R&D Expensing -51.0 -33.6 -24.0 -14.9 -7.8 -4.2 -4.5 -4.9 -5.4 -5.6 -156.0
Permanent 100% Bonus Depreciation -51.5 -58.5 -61.4 -42.2 -31.4 -19.3 -18.3 -17.1 -17.7 -18.1 -335.5
Permanent 100% First Year Bonus for Qualifying Structures -10.9 -10.1 -10.1 -10.1 -9.4 -8.6 -9.3 -10.7 -10.4 -10.7 -100.1
Permanent 30% of EBIT to EBITDA -3.0 -3.3 -3.8 -3.9 -3.3 -3.3 -3.8 -4.3 -4.5 -3.8 -36.9
Conventional Total -245.2 -573.7 -589.0 -547.5 -414.5 -406.1 -432.1 -449.2 -487.3 -486.4 -4,631.1
Dynamic Total -236.8 -499.0 -491.3 -435.9 -301.2 -279.4 -293.9 -301.9 -336.7 -321.8 -3,497.9

Conclusion: Don’t Compromise on Pro-Growth Permanence

The current House tax package falls short of its full potential by relying on temporary cost recovery provisions. Permanence for these key business tax cuts would more than double the long-run economic impact, leading to significant increases in GDP, capital investment, worker wages, and job creation. While it entails a slightly higher fiscal cost, the dynamic revenue feedback generated by this enhanced growth makes it a worthwhile investment in the nation’s economic future. As lawmakers continue their deliberations, they should prioritize permanence for these most pro-growth provisions to maximize the benefits for the American economy.

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