Imagine a world where tax policies not only boost economic growth but also encourage investment, create jobs, and raise wages. The debate surrounding the Tax Cuts and Jobs Act (TCJA) often revolves around which tax cuts to retain, but one crucial policy excluded from the TCJA should not be overlooked: neutral cost recovery (NCR) for structures. A new bill introduced by Rep. Kevin Hern (R-OK), known as the Renewing Investment in American Workers and Supply Chains Act, aims to reintroduce NCR and revolutionize the tax policy landscape. By adopting neutral cost recovery, the bill promises to enhance investment incentives in the US, leading to significant economic growth, increased wages, and more jobs.
Here’s how the proposed bill would work and the potential impact it could have:
- Shortening cost recovery schedules for residential and nonresidential structures to 20 years.
- Applying inflation and opportunity cost adjustments to deductions annually.
These adjustments would eliminate the current tax penalty for investing in structures, thereby driving additional capital investment and spurring economic output and wage growth. The Tax Foundation’s model predicts that the Hern proposal could increase the capital stock, GDP, and wages, while creating hundreds of thousands of new full-time equivalent jobs.
Despite potential revenue decreases in the short term, the long-term benefits of neutral cost recovery for structures are substantial. By overcoming current tax penalties for investment in structures and enabling full deductibility of investments, this policy change could lead to a $1.8 trillion increase in the level of productive assets in the economy by 2024.
Transitioning to NCRS may present fiscal and practical challenges; however, the benefits far outweigh the initial costs. By maintaining longer depreciation schedules and adjusting deductions over time, neutral cost recovery for structures ensures that businesses can deduct the full cost of investments without confronting immediate revenue losses or overwhelming deductions.
In conclusion, embracing neutral cost recovery for structures can unleash a myriad of opportunities for economic growth, job creation, and wage increases. It’s time to prioritize policies that incentivize investment and set the stage for a thriving economy. Let’s reimagine our tax system to unlock the full potential of businesses and workers alike.
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