Enact Full Expensing for All Capital Investment

Businesses can deduct ordinary business costs from revenue to determine taxable income and tax owed. But when businesses make a capital investment, they may only be able to deduct a portion of the cost immediately, with the rest deducted over future years on future tax returns. Delaying deductions prevents businesses from fully recovering investment costs because inflation and the time value of money erode the real value of the deductions.

The One Big Beautiful Bill Act of 2025 permanently gave businesses the ability to fully expense investment in short-lived assets like equipment and machinery, as well as domestic research and development. It also temporarily introduced full expensing for manufacturing structures, which will be available until the end of 2028. But most long-lived assets must still be deducted over decades-long depreciation schedules.

This option introduces full expensing for all capital investment, allowing full and immediate deductions for all investment costs rather than requiring depreciation deductions over time. By eliminating the tax penalty that arises from spreading deductions over time, this option would lower the cost of capital and increase the incentive to invest, boosting the capital stock, wages, and economic output. Because the change primarily affects the timing of deductions, it does not have a substantial revenue cost over the long run.

On a conventional basis, this option would increase the primary deficit by $1,369.6 billion over the budget window. Long-run GDP would rise by 2.7 percent, and long-run GNP by 2.5 percent. On a dynamic basis, the primary deficit would decrease by $321.1 billion from 2027 through 2036, $1,690.7 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 160.4 percent by 2056.

On average, in 2036, taxpayers would see increases in their after-tax incomes of 0.5 percent. The top quintile of taxpayers would experience a 0.6 percent increase, while the bottom quintile would experience a 0.4 percent increase. On a long-run dynamic basis, taxpayers would see a 2.5 percent increase on average.