From now until November, congressional candidates and members of the Trump administration will be on the campaign trail touting the ways in which Americans are benefitting from the One Big Beautiful Bill Act (OBBBA). That landmark tax bill, which President Donald Trump signed into law last July, includes many provisions that are now saving individuals, families, and employers billions of dollars every year. However, the first thing that needs to be said is that federal income tax rates would’ve risen for every income tax bracket at the end of last year had Congress and President Trump failed to enact OBBBA.
In addition to permanently locking in the personal income tax rate cuts for all income levels that were temporarily authorized as part of the 2017 Tax Cuts and Jobs Act, OBBBA included a number of other tax-cutting provisions, some new and others a restoration of previously enacted relief. Yet, perhaps the most pro-growth aspect of OBBBA, its restoration of full business expensing, has received scant attention (both from the media and candidates) relative to the economic boost it provides.
White House officials and members of Congress frequently tout the new tax cuts in OBBBA, such as the new exemptions for tip and overtime income, but OBBBA’s permanent enshrinement of full business expensing, both for capital expenditures as well as research and development costs, deserves more attention. Though the new tax exemptions for tips and overtime income receive more coverage, OBBBA’s permanent extension of full business expensing for capital and R&D expenditures is more important for economic growth and job creation.
“The OBBBA restores and makes permanent full expensing for machinery and equipment under § 168(k), reverses § 174 amortization for R&D expenditures, introduces § 168(n) expensing for qualified production property, and raises the § 179 expensing cap to $2.5 million,” notes the nonpartisan Tax Foundation, adding that “these provisions reduce investment biases and boost economic output by accounting for inflation and the time value of money.”
“Without these four expensing provisions, businesses only get the benefit of these deductions over time: for periods as long as 20 years for assets eligible for immediate expensing under § 168(k), and for 39 years for the factories eligible for first-year expensing under § 168(n),” explains Jared Walczak, a Tax Foundation senior fellow. “That imposes real costs, due to inflation and the time value of money. The present value of a deduction spread over the next 5, 10, 20, or even 39 years is less than the value of receiving the full deduction now.”
While economists can tout the pro-growth aspects of full expensing, business owners themselves do the best job of describing the real world benefits of full expensing. Take Carey Bringle, owner of Peg Leg Porker, an award-winning BBQ joint in Nashville, who says that “the section 179 deduction is huge at 100 percent,” adding “allowing business owners like me to say, ‘alright, before the end of the year I’m going to buy a new truck, a new catering van, I’m going to buy to a new smoker, I’m going to invest more in my business,’ which can create more jobs, which drives revenue for other industries.”
“Just nationwide as a whole, it’s great for American-made products,” Bringle added during a December 13 policy discussion hosted by the Beacon Center of Tennessee, a Nashville-based think tank. “It’s just great for business all around. That ability to write it off in the year that you buy it and negate a lot of taxes because of that is huge. If I can go buy a $200,000 piece of equipment, well now I’m buying something from another business who is going to benefit. It’s going to help me expand my business operations, which is going to help me benefit. It’s probably going to create some more jobs, not only from my business but for the other business I buy it from. And now my tax burden is reduced to the federal government. Because instead of giving that money to Uncle Sam, to spend on God knows what, now I’m giving it to another business.”
As Bringle explains, the permanent full business expensing provisions included in OBBBA provide demonstrable tax relief to employers, which increases their capacity to hire new workers, give existing employees raises, and invest in the expansion of their operations. But Bringle also explains how permanent full business expensing provides a morale boost for job creators.
“I’m able to take the deduction and invest it into myself and my business that I know is going to create jobs,” Bringle added. “Other than being great tax policy, it’s a feel-good policy for a business owner to feel better about the money that you’re earning. Business owners want to invest, they want to create more. If you’re a natural entrepreneur, you want to keep going. When the federal government deincentivizes you to keep going because the more you grow the more you get taxed, that’s when business grinds to a halt. So deductions like this are paramount to businesses thriving in their communities.”
With OBBBA now locking in full expensing at the federal level, the question for state lawmakers is whether they will follow suit or move in the opposite direction. States that conform will reinforce an environment that rewards investment, expansion, and job creation, while those that decouple risk placing their employers at a disadvantage. At a time when businesses can increasingly choose where to locate and grow, tax policy choices like these will play a central role in determining which states attract the next generation of investment.
