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1 Alex Muresianu, et al., Leveraging Tax Policy to Bolster US Economic Growth amid Competition with China 1 (2024)

handle is hein.taxfoundation/levetax0001 and id is 1 raw text is: *%TAX FOUNDATION Leveraging Tax Policy to BolsterUS Economic Growth Amid Competition with China Alex Muresianu Senior Policy Analyst Alex Durante Economist Erica York Senior Economist, Research Director October 2024 Key Findings • Competition with China has become a key theme of American politics. One crucial aspect of that com- petition is aggregate economic growth. • One policy lever that affects aggregate economic growth (among many) is the structure of the corpo- rate tax system and its effects on investment and productivity. • Historically, broadly pro-investment tax policy has driven higher levels of investment and productivity growth. In contrast, narrow policy aimed at specific industries may benefit the recipients but often reallocates rather than stimulates investment. • Currently, China provides more favorable tax treatment of investment broadly and layers on a much greater magnitude of subsidies than the United States, particularly with its super deduction for re- search and development (R&D). • In the United States, full cost recovery for machinery and equipment investment is phasing out, a new tax penalty for R&D has taken effect, and the headline corporate rate when including the average of state and local rates already sits higher than China's headline rate. • Restoring expensing for R&D, machinery, and equipment; extending better cost recovery to structures investment; and avoiding raising the corporate tax rate would create a stronger, pro-investment policy environment for the US economy. We estimate better cost recovery could boost US economic output by 1.7 percent and the size of the capital stock by 3.3 percent, at about half the budgetary cost of the Inflation Reduction Act's green energy tax credits and the CHIPS and Science Act's tax credits, grants, and spending authorizations. • Better tax policy would not serve as a cure-all for narrower security-related economic concerns with China but would support increased capacity to help meet such challenges. We would like to thank Nicolo Pastrone for his contributions to this project. The Tax Foundation is the world's leading nonpartisan tax policy 501 (c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464-6200 1 laxfoundation.org

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