The Tax Foundation has called for permanent full expensing for capital investment as a crucial element in the tax reform package being crafted by Republicans this year. The organization argues that this policy would significantly boost economic growth with minimal revenue loss.

Currently, the US tax code does not allow businesses to take full deductions for their investments in capital and research activities. Instead, it imposes complex depreciation schedules that require deductions to be spread over several years. This system reduces the value of deductions due to inflation and diminishes the incentive for businesses to invest.

According to the Tax Foundation, "permanent full expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings." They believe this approach would correct biases in the tax code and encourage companies to increase their investments. In turn, this could lead to higher worker productivity, increased wages, and more job creation.

The current system is seen as a deterrent to investment within the United States, resulting in lower levels of capital stock and reduced productivity and wages compared to what might be achieved with a more favorable tax structure.

This commentary was initially published as part of an op-ed in Bloomberg Tax.