The Republican Study Committee (RSC) released its FY 2023 budget today, led by Budget and Spending Task Force Chair Rep. Kevin Hern (R-OK) and RSC Chairman Jim Banks (R-IN), and prescribes several pro-growth tax reforms that would simplify the tax code and encourage business investment. Among the most impactful reforms are permanence for the Tax Cuts and Jobs Act’s (TCJA) individual and expensing provisions, reforming depreciation for large investments, and simplifying saving for individuals.

In the current economic climate, policymakers should focus on policies to encourage economic growth, combat inflation, and ensure a stable landing. Altogether, the RSC’s tax reforms would move the tax code closer to neutrality, encouraging growth while simplifying the tax code.

Many of the business reforms in the RSC’s budget move the tax code towards fairer treatment of investment and expenses. Among the most pro-growth tax reforms is enacting neutral cost recovery for large investments, such as factories or apartment buildings. The RSC budget includes the Renewing Investment in American Workers and Supply Chains Act, introduced by Rep. Jackie Walorski (R-IN) and Chairman Banks, that would enact neutral cost recovery for long-lived investments and shorten their depreciation schedules to 20 years. We find the proposal would boost the economy by 1 percent, create 230,000 jobs, and increase the capital stock by 2.3 percent, all while raising $126 billion in dynamic revenue over 10 years.

Further, the RSC budget calls for permanent expensing for many other investments such as equipment, research and development expenses, and educational investment by employers. Allowing businesses to take an immediate and full deduction for their expenses would help employees and workers by boosting productivity and wages. The budget also calls for reforming the treatment of net operating losses, which would allow businesses to retain the full value of NOLs over time.

Together, the business reforms in the RSC budget are an effective and sustainable way to keep wages growing and encourage any domestic business to make investments in the United States.

The RSC budget calls for the permanence of TCJA’s individual tax reforms, ensuring certainty for taxpayers and the IRS while encouraging work and maintaining the reforms that made filing easier for many taxpayers, such as the larger standard deduction. Creating universal savings accounts (USAs) would encourage taxpayers to save through simplified tax-advantaged accounts without withdrawal restrictions. Experience with similar accounts in other countries suggests that low-income taxpayers save a higher percentage of their income than high-income taxpayers through these accounts.

Indexing the tax code can help taxpayers hedge against inflation and better measure real income. However, it should be adopted across the entire tax code; selective implementation can lead to unintended consequences. Specifically, indexing capital gains and leaving capital expenses unindexed could create arbitrage opportunities and further complicate the tax code.

Further changes would simplify and remove distortions from the tax code, chiefly the state and local tax deduction that primarily benefits high-income individuals. Removing marriage penalties would remove distortions within family provisions, such as the Child Tax Credit and Earned Income Tax Credit, and simplify filing.

The United States needs to grow its way out of inflation and set the economy up for continued growth—the tax code provides tools for policymakers to do just that. The RSC’s budget suggests a menu of tax changes to grow the economy, tamp inflation, and simplify the tax code.