A main feature of this bill will be to extend temporarily 100 percent bonus depreciation and research and development immediate expensing until the end of 2025. This is a boon for workers and businesses, and the downstream effects will positively affect consumers.
The measures that initially appear pro-business will benefit consumers.
The bill will extend the sunset clause of two important tax expensing rules. One hundred percent bonus depreciation allows companies to expense the total amount of their depreciable assets in the year they were purchased. At the same time, immediate R&D allows companies the option to deduct fully the cost of their investments.
Both allow businesses to invest more in growth and innovation since they can immediately remove such expenses from their tax burden. Presently, expensing would occur over several years, diminishing benefits as inflation erodes the value of the tax deduction. For example, five-year amortization (expensing over five years instead of all in the same year) could deny businesses as much as 28 percent of their investment’s actual value.
R&D is an especially beneficial investment for consumers since it is the driving force behind product innovations that lower costs and expand the affordability of novel technology. In the Hamilton Project’s “A Dozen Economic Facts About Innovation,” fact three addresses how increased innovation makes novel consumer products (like technology) more affordable. For many companies, R&D is the backbone of their operations and responsible for American economic growth in the last two decades.
Despite these consumer benefits and economic vitality, the United States remains the only developed country to require R&D expense amortization. First-year full expensing is an effective method for incentivizing more R&D investment, which benefits consumers. Furthermore, when looking at the incentive structure for companies deciding whether to increase R&D expenditures, it is evident that state tax incentives are necessary to maximize innovation and consumer welfare.
A study comparing the economic effects of product innovation and cost-cutting found that firms focusing on innovation are more productive than those focusing on cutting costs. Thus, tax incentives that increase short-term gains may incentivize firms to focus more on increasing innovation, thus increasing productivity and novel product affordability.
Considering the many ways this bill would help consumers, the Tax Relief for American Families and Workers Act ought to include the word “consumers” too. The benefits to the American consumer are apparent, and one can only hope those in Congress will see this, too. The tax incentives to innovate will bring America up to speed with the rest of the developed world while paying dividends to consumers in the long run as companies receive immediate deductions for their investments.
The only thing better would be to make these changes permanent, but even temporary tax reform is a step in the right direction.
Isaac Schick is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.