Improving the House Tax Bill: A Path to Pro-Growth Reform

Strategic Insights -

The House of Representatives recently passed its One Big Beautiful Bill Act, a comprehensive tax reform package that, while containing some positive provisions, falls short of delivering serious pro-growth tax reform. The bill now heads to the Senate, where lawmakers have the opportunity to improve it. To achieve meaningful tax reform, the Senate should make four key changes to the House-passed bill: permanently extend expensing, expand expensing for structures, swap Trump accounts for universal savings accounts, and scale back tax subsidies.

Key Takeaways:

  • The House bill's temporary expensing provisions, which expire in 2029, will have no impact on long-run economic growth. Making expensing permanent would more than double the expected long-run growth and turn both business investment and wage growth significantly positive.
  • Expanding immediate expensing treatment to all structures, not just manufacturing, would lower the cost of new housing construction and could add 2.3 million new units to the housing stock.
  • Swapping Trump accounts for universal savings accounts would provide individuals with a simple, flexible savings vehicle available to all Americans, allowing them to contribute up to $10,000 of after-tax income annually and withdraw the funds tax-free at any time.
  • The House bill adds or expands at least 20 tax credits, deductions, and exclusions, each of which entails fiscal costs, adds complexity, opens new avenues for tax avoidance, and delivers little in the way of long-term growth. Limiting these new or expanded provisions would help offset the revenue reductions from expanding and making permanent the most pro-growth provisions.

Statistics:

  • The Tax Foundation estimates that making the 2017 expensing provisions permanent would more than double the long-run growth expected from the bill.
  • Expanding immediate expensing treatment to all structures could add 2.3 million new units to the housing stock.
  • Universal Savings Accounts would provide individuals with a flexible savings vehicle available to all Americans.
  • The House bill adds or expands at least 20 tax credits, deductions, and exclusions.

Sources:

  • Adam N. Michel, "Cato Tax Bootcamp: Everything You Need to Know," Adam N. Michel, Substack, 2023.
  • Adam N. Michel, "Four Ways the Senate Can Improve the House-Passed Tax Bill," Cato Institute, Blog, 2023.
  • Tax Foundation, "House Tax Plan Economic Growth Impact and Business Tax," Tax Foundation, Blog, 2023.
  • Adam N. Michel, "Universal Savings Accounts Help Families Build Wealth," Cato Institute, Blog, 2023.
  • National Review, "Americans Want Congress to Create Tax-Free Savings Accounts," National Review, 2023.