January 18, 2024
Business Tax Provisions in The Tax Relief for American
Families and Workers Act of 2024
The Tax Relief for American Families and Workers Act of
2024, 40% in 2025, 20% in 2026, and 0% for property
2024, released by the Senate Finance Committee on
acquired and placed in service in 2027 and thereafter.
January 16, 2024, and introduced in the House (H.R. 7024)
would, among other provisions, modify four business tax
Full expensing leads to an effective zero tax rate on new
provisions enacted in P.L. 115-97, referred to as the Tax
tangible business investment financed with only equity, and
Cuts and Jobs Act of 2017 (TCJA). Temporary provisions
to negative tax rates when financed in part by borrowing.
include extending first-year expensing, reinstating
The regular depreciation rules are accelerated (relative to
expensing for research expenses, and reinstating a broader
economic depreciation) and also confer a benefit that is
definition for income for purposes of the limit on interest
estimated to result in a 13.7% tax rate for equity-financed
deductions. The proposal would also increase the dollar
corporate investment, below the 21% statutory rate. For
limit of first-year depreciation aimed at smaller businesses,
more on effective tax rates, see CRS Report R45186, Issues
a permanent provision.
in International Corporate Taxation: The 2017 Revision
(P.L. 115-97), by Jane G. Gravelle and Donald J. Marples.
Extension of First-Year Expensing of
Equipment (“Bonus Depreciation”)
Incentives for equipment investment favor those
The proposal would retroactively extend first-year
investments relative to investment in buildings, although
expensing, commonly referred to as bonus depreciation, for
they lead to uniform treatment with respect to investment in
assets placed in service after December 31, 2021, through
most intangibles which are currently expensed (such as
2025.
advertising to create brand identification, workforce
development, and, until 2022, research expenses).
The cost of assets that provide services over a period of
time, such as machines or buildings, is deducted over a
See CRS Report RL31852, The Section 179 and Section
period of years as depreciation. The schedule of
168(k) Expensing Allowances: Current Law, Economic
depreciation deductions depends on the asset’s life and the
Effects, and Selected Policy Issues, by Gary Guenther for
distribution of deductions over that life. Straight-line
further discussion.
depreciation is used for structures, where equal amounts are
deducted in each year. For equipment, deductions are
Reinstatement of Expensing of Research
accelerated, with larger amounts deducted in earlier years.
and Experimentation Expenditures
Equipment is most commonly depreciated over 5 or 7 years,
The proposal would reinstate expensing of research and
but some short-lived assets are depreciated over 3 years and
experimentation (R&E) expenditures for 2022-2025.
some longer-lived assets are depreciated over 10, 15, or 20
years. Residential structures are depreciated over 27.5 years
Investments in research and development (such as the cost
and nonresidential structures are depreciated over 39 years.
of labor and supplies) have traditionally been expensed
Aside from the desire for economic stimulus, traditional
(immediately deducted), although these investments create
economic theories suggest that tax depreciation should
assets that yield income in the future. The TCJA provided
match economic (physical) depreciation of assets as closely
that, beginning in 2022, domestic costs would be deducted
as possible.
in equal amounts over five years (i.e., five-year
amortization). Foreign costs are subject to 15-year
The expensing provision enacted in 2017 allows immediate
amortization. This treatment does not apply to equipment
deductions for depreciation, which are valuable because of
and structures used for research and development, which
the time value of money. A fixed reduction in tax liability
are recovered using regular depreciation rules.
today is worth more than that same fixed reduction in tax
liability in the future. Expensing provisions allow a firm to
Research expenditures are also eligible for a tax credit, and
deduct the cost of an asset the year it is placed in service.
the amount of expenditures is reduced by the credit for both
Expensing or partial expensing is also commonly referred
expensing and five-year amortization. These features
to as bonus depreciation. The expensing provision does not
together lead to significant negative effective tax rates
apply to structures.
under either expensing or five-year amortization, largely
due to the credit. For effective tax rates, see CRS Report
The TCJA allowed full (100%) expensing of investments in
R45186, Issues in International Corporate Taxation: The
qualifying equipment and property through 2022. The share
2017 Revision (P.L. 115-97), by Jane G. Gravelle and
of investments that can be deducted in the year they are
Donald J. Marples.
incurred is scheduled to decrease to 80% in 2023, 60% in
https://crsreports.congress.gov
Business Tax Provisions in The Tax Relief for American Families and Workers Act of 2024
Some argue evidence suggests that there is underinvestment
2017 Revision (P.L. 115-97), by Jane G. Gravelle and
in research because the social benefits of the assets exceed
Donald J. Marples, for a discussion.
the private benefits. That is, companies cannot fully capture
the earnings from investments in research. Both expensing
In addition, debt-financed investments are favored by the
and the R&E credit, they argue, are often justified on this
tax law because nominal interest is deducted (i.e., the gains
basis. For a discussion of this evidence, see CRS Report
from repaying debt in cheaper dollars are not recognized),
RL31181, Federal Research Tax Credit: Current Law and
while most interest is not taxed to the lender. For estimates
Policy Issues, by Gary Guenther.
of total effective tax rates with full or partial debt finance,
see CRS Report RL34229, Corporate Tax Reform: Issues
Reinstatement of the Earnings Before
for Congress, by Jane G. Gravelle. This favoritism may be
Taxes, Interest, Depreciation, and
offered as a reason for limiting interest deductions.
Amortization (EBITDA) for Determining
the Interest Deduction Limit
First-Year Depreciation Dollar Limits
The Tax Relief for American Families and Workers Act of
(Section 179 Expensing)
2024 would temporarily reinstate EBITDA as the basis for
This provision permanently raises the dollar limits on the
the 30% limit on interest deducted as a share of income for
amount of investment that can be expensed.
2022 through 2025.
Regardless of the general rules on depreciation, a provision
Prior to the TCJA, the deduction for net interest was limited
allows expensing of equipment up to a specified dollar
to 50% of adjusted taxable income for firms with a debt-
amount, a provision aimed at smaller businesses. The TCJA
equity ratio above 1.5. (Adjusted taxable income is income
raised that limit to $1 million, with the expensing phased
before taxes, interest deductions, and depreciation,
out dollar for dollar after investment of $2.5 million. Those
amortization, or depletion deductions.) Interest above the
provisions were indexed for inflation and were $1.16
limitation could be carried forward indefinitely. The law
million and $2.9 million in 2023. The proposal would raise
limited deductible interest to 30% of adjusted taxable
these limits to $1.29 million and $3.22 million in 2024,
income for businesses with gross receipts greater than $25
respectively, and index them for inflation. Because of the
million. The provision also had an exception for floor plan
extension of expensing, this change is not that relevant until
financing for motor vehicles. Businesses providing services
2026.
as an employee and certain regulated utilities are excepted
from this new limit. Also, certain real property and farming
The expensing for smaller businesses is sometimes done as
businesses can elect out of this limit but must adopt a
a simplification measure and sometimes to encourage
slower depreciation method for real property or farming
investment for small businesses. However, it also could
assets.
discourage investment in the phaseout stage.
Under prior law and the temporary provisions of the TCJA,
See CRS Report RL31852, The Section 179 and Section
this interest limit applies to earnings (income) before
168(k) Expensing Allowances: Current Law, Economic
interest, taxes, depreciation, amortization, or depletion
Effects, and Selected Policy Issues, by Gary Guenther for
(referred to as EBITDA). After 2021, the TCJA changed
further discussion.
the measure of income to earnings (income) before interest
and taxes (referred to as EBIT). Because EBIT is after the
Revenue Costs
deduction of depreciation, amortization, and depletion, it
The Joint Committee on Taxation estimates that the total
results in a smaller base and thus a smaller amount of
cost for these provisions is $32.8 billion over 10 years
eligible interest deductions. The temporary broader base
(FY2024-FY2033). Temporary expensing for depreciation
(EBITDA), which expired in 2021, allowed more interest
and R&D would have their initial losses ($68.3 billion and
deductions. The more generous rules for measuring the
$96.6 billion in the first two years) largely offset by future
adjusted taxable income base are more beneficial to
gains because these provisions are timing shifts, with 10-
businesses with depreciable assets, although affected
year estimates at $3.0 billion for bonus depreciation and
businesses might be able to avoid some of the change in the
$8.5 billion for R&D. There would nevertheless be a cost to
deduction rules by leasing assets from financial institutions,
the government in increased interest payments to allow the
such as banks, that generally have interest income.
deferral of revenues. The move from EBITDA to EBIT has
a 10-year cost of $18.8 billion for FY2024 through
The restrictions on interest, called thin capitalization rules,
FY2033, with most of the cost ($16.4 billion) in the first
were partially enacted to address concerns about large
two years. The increase in the dollar limit for Section 179
multinational businesses locating borrowing in the United
expensing is estimated at $2.5 billion over 10 years.
States as a method to shift profits out of the United States
and to foreign, lower-tax jurisdictions. See CRS Report
Jane G. Gravelle, Senior Specialist in Economic Policy
R45186, Issues in International Corporate Taxation: The
IF12572
https://crsreports.congress.gov
Business Tax Provisions in The Tax Relief for American Families and Workers Act of 2024
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12572 · VERSION 1 · NEW