A major new piece of legislation providing critical tax relief to American consumers, families, and businesses passed a major hurdle last week when the House lawmakers overwhelmingly voted to approve the tax package. Dubbed the Tax Relief for American Families and Workers Act (TRAFWA), this important tax package proposes restoring or extending multiple pro-growth tax incentives that promote technological innovation, encourage business investment, and spur job creation.
Among three of the most important features of the TFAFWA are restoring 100 percent bonus depreciation, restoring full expensing for Research and Development (R&D) investments, and ending the COVID-era Employee Retention Tax Credit (ERTC) program, which has been rife with fraud and abuse, and will help pay for the tax package.
The full expensing provision of the bill would restore the ability of businesses to write off 100 percent of new asset costs in the year they were purchased, rather than applying the reduction in taxable income over several years. Until last year, businesses could use this generous tax provision to save money immediately on capital expenditures like equipment and other large assets that lose value over time. This encouraged investment and capital formation and provided businesses with the opportunity to reduce their tax exposure.
Unfortunately, this tax provision was only temporary and is currently phasing out by 20 percent annually, until it fully expires in 2027. The TRAFWA seeks to remedy this problem by retroactively restoring all business investments made in 2023, meaning businesses will still receive the full benefits of 100 percent depreciation for this past year. The bill would also temporarily extend the tax credit through 2026. Such a move would provide businesses with greater flexibility to make investment decisions and plan for their future.
The TRAFWA’s R&D component is equally important. It would restore the ability of businesses to immediately deduct the full cost of their R&D investments. Like 100 percent bonus depreciation, this tax feature incentivizes investment by reducing a business’s tax burden, but it does so for R&D-intensive industries like science and manufacturing, making it critical to product innovation.
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Nate Scherer 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.