House Tax Plan Economic Growth: Analysis
As policymakers prepare to assemble the pieces of the House reconciliatory package, they should consider ways to improve taxA Tax is a mandatory payment collected by local, State, and National governments from individuals and businesses to cover costs of general government goods, services, and activities.
The package is designed to maximize economic growth. The tax package passed by the
Ways and Means CommitteeThe Committee on Ways and Means is one of the 29 U.S. House of Representatives committees and is responsible for tax writing in the U.S. The House Ways and Means Committee is responsible for all bills that relate to taxes and revenue generation as well as spending programs such as Social Security, Medicare and unemployment insurance.
The temporary business provisions include 100 percent bonus depreciation. The temporary business provisions include a 100 percent bonus deduction. Bonus depreciation allows companies to deduct more of certain “short lived” investments in new technology, equipment or buildings the first year. The temporary business provisions include 100 percent bonus depreciation. 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.
, expensing of research and development (R&D) investment, a more generous interest deduction limit, and a new 100 percent bonus depreciationDepreciation 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. Depreciation is a method of reducing the value of assets over time.
While temporary extensions of better cost recoveryCost recovery is the ability for businesses to recover (deduct) the costs of their investments. While temporary extensions for better cost RecoveryCost Recovery is the ability of businesses recover (deduct the costs of their investment). It can impact investment decisions and help define a business’s tax base. When businesses cannot fully deduct capital expenditures, they spend less on capital, which reduces worker‘s
productivity and wages.
will lead to short-term economic benefits, scheduling the provisions to expire will undermine the long-term benefits.
If instead the four provisions were made permanent, they would increase long-run GDP by 1.0 percent, more than doubling the 0.6 percent long-run GDP effect of the tax package as passed by Ways and Means.
Under permanence for the cost recovery provisions, the US capital stock and worker wages would rise by 1.6 percent and 0.7 percent, respectively, rather than falling as in the current legislation. American incomes would rise by 0.9 percent, compared to a less than 0.05 percent GNP increase if the provisions are left temporary.
Making the TCJA business and structures cost recovery provisions permanent would increase the cost of the package. We estimate the package would cost about $4.6 trillion on a conventional basis over 10 years, compared to a cost of about $4.1 trillion in the current package.
Table 1. Table 1. Long-Run Effects of Ways & Means Tax Legislation May 12 with Permanent TCJA Provisions and Cost Recover for Certain Structures.
Source : Tax Foundation General Equlbrium Model, may 2025
The Dynamic Cost, however, only increases slightly from $3.3 trillion up to $3.5 trillion in 10 years, as the progrowth revenue feedback provided by the permanent revenue provisions offsets a part of the added conventional cost. Revenue Effect of Ways and Means May 12 Tax Legislation with Permanant TCJA Business Provisions and Cost Recovery for Certain Structures, Billions of Dollars
Source: Tax Foundation General Equilbrium Model, May 2025
Permanence for the four cost recovery provisions would more than double the long-run economic effect of the Ways and Means package, while increasing the 10-year conventional cost of the package by less than 14 percent and the 10-year dynamic cost by less than 6 percent.
The current package produces meager effects on GDP and a smaller US capital stock over the long run because the cost recovery provisions sunset. As lawmakers continue to debate the tax package, they should not compromise on permanence for the most pro-growth provisions.
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