A recent study by the National Bureau of Economic Research (NBER) highlights the impact of tax policies on business investment in the United States.
The research indicates that reducing the cost of capital investment leads to a significant increase in capital spending, potentially exceeding the estimates of government analysts.
The study analyzed the effects of the 2017 Tax Cuts and Jobs Act (TCJA), specifically focusing on the impact of corporate tax rate cuts and full expensing provisions.
The authors, Jonathan Hartley, Kevin Hassett, and Joshua Rauh, found that a one percentage point reduction in the cost of capital triggered a 1.7 to 3.0 percentage point increase in the business investment rate.
This suggests that making full expensing permanent could be a highly effective pro-growth tax policy. The study also suggests that bonus depreciation may have had a greater impact on business investment than the corporate tax rate reduction.
The findings are particularly relevant as the U.S. Senate considers the One Big Beautiful Bill Act (OBBB), which includes a revival of 100 percent bonus depreciation through 2029.
The study's conclusions may influence the ongoing policy debate and the evaluation of the bill's potential impact on economic growth and government revenues.