The OBBBA: A Major Step for Investment, but the Job Isn’t Finished

The One Big Beautiful Bill Act (OBBBA) has fundamentally reshaped how businesses invest in the United States. By enhancing the ability of companies to “expense”—or immediately deduct—the cost of new investments, the act has provided a vital spark for economic expansion.

While the OBBBA made significant strides, particularly in equipment and R&D, tax experts argue that the work is far from over. Extending these same benefits to all structures remains the next “frontier” for pro-growth tax reform.

Why Full Expensing is a Game Changer

Standard tax rules usually require businesses to “depreciate” an investment, spreading the deduction over several years. However, due to inflation and the time value of money, a dollar deducted five years from now is worth significantly less than a dollar today.

The Math of Depreciation: Consider a $1,000 equipment investment depreciated over six years. With 3% inflation, that deduction loses about 18% of its real value. For a corporation, this effectively hikes the after-tax cost of the investment by 3.8%.

By allowing immediate expensing, the OBBBA removes this “tax penalty,” making it cheaper for businesses to build, innovate, and hire.

Key Changes Under the OBBBA

The OBBBA didn’t just tweak the rules; it solidified them. It took temporary provisions from previous laws (like the TCJA) and made them a permanent fixture of the U.S. tax code.

1. Permanent Bonus Depreciation (Section 168[k])

The act permanently set a 100% bonus rate for machinery, equipment, and software. This ensures businesses can plan long-term investments without fearing the “cliffs” of expiring tax breaks.

2. Domestic R&D Expensing (Section 174)

Previously, companies were forced to amortize (spread out) R&D costs. The OBBBA reversed this for domestic R&D, allowing for immediate write-offs. This is a massive win for innovation, though foreign-based R&D must still be amortized over 15 years.

3. Expanded Small Business Deductions (Section 179)

The OBBBA increased the deduction limit for small businesses from $1 million to $2.5 million, helping smaller players modernize their facilities and equipment.

4. Manufacturing Structures (Section 168[n])

In a bold but temporary move, the act allows expensing for new manufacturing construction started before 2029. While helpful, its temporary nature limits its long-term impact on GDP.

Economic Impact at a Glance

According to the Tax Foundation and the CBO, the OBBBA is already providing a measurable boost to the economy.

The Evidence: Does It Actually Work?

The data suggests that when you stop penalizing investment, businesses respond.

• Employment: Studies show that bonus depreciation increases hiring. Interestingly, research suggests it specifically benefits young workers and minority demographics.

• Innovation: Research from Stanford Business School estimated that the previous “amortization” rules slashed R&D investment by over $12 billion. Expensing reverses that trend.

The Missing Piece: All Structures

The OBBBA’s biggest limitation is that most buildings (residential and commercial) are still stuck with 27.5-to-39-year depreciation schedules.

If policymakers extended expensing to all structures, the economic rewards could be massive:

• GDP Growth: An additional 1.3% boost.

• Housing: A 2020 study suggested that applying this logic to residential structures could result in 2.33 million new homes over the long run.

Conclusion

The OBBBA has successfully laid the groundwork for a more competitive U.S. economy. By making equipment and R&D expensing permanent, it has removed major hurdles to growth. However, to truly unlock the economy’s potential—and solve the housing crisis—lawmakers should look toward the blueprint the OBBBA provided and finish the job by including all structures.