The House of Representatives recently passed its One Big Beautiful Bill Act, which, among many other things, extends the expiring 2017 Trump tax cuts. Now the bill heads to the Senate, where lawmakers have the opportunity to improve a bill that currently falls short of delivering serious pro-growth tax reform.
Here are four ways the Senate can improve the House-passed tax bill.
Permanent Expensing
The House bill permanently extends many important pro-growth elements of the 2017 Tax Cuts and Jobs Act, including lower individual income tax rates and a larger estate tax exemption. However, it only temporarily extends key investment deductions and “full expensing” for equipment, machinery, and research expenses through 2029. Because temporary tax cuts don’t meaningfully change long-run incentives to invest in and grow businesses, these temporary changes will have no impact on long-run economic growth.
The Tax Foundation estimates that making the 2017 expensing provisions permanent would more than double the long-run growth expected from the bill. More importantly, this permanent change reverses the temporary bill’s long-run negative effects on business investment and wage growth, turning both significantly positive.
Expand Expensing for Structures
The House bill includes a new category of temporary expensing, allowing full immediate write-offs for manufacturing structures. This new treatment also expires after 2029. Like the other expensing provisions, making expensing for structures permanent would be a significant pro-growth improvement.
Better yet, the Senate should expand immediate expensing treatment to all structures. The current industry-specific carve-out will effectively tilt the playing field toward manufacturing investment over other types of important investments in buildings for offices, administrative services, parking, and software engineering. The new policy should not exclude these nonresidential structures. Expanding the treatment further to residential structures would lower the cost of new housing construction and could add 2.3 million new units to the housing stock.
Swap Trump Accounts for Universal Savings Accounts
The House bill creates a new Trump account, a rebranded version of the MAGA account from earlier drafts. These child-focused investment accounts allow families to contribute up to $5,000 annually in after-tax dollars, with investment earnings taxed at preferential capital gains rates if used for specific qualified expenses, including education, first-time home purchases, and business startups. The bill also includes a temporary $1,000 federal contribution to accounts for children born between 2025 and 2028.
This new program adds yet another layer to an already fractured and overly complicated system of government subsidies for children. While the upfront cost of the $1,000 deposits is relatively small, history suggests that this will not remain a modest, temporary program. It creates a new policy vehicle that future Congresses will likely expand, morphing into baby bonds, 401(k) kids, or other paternalistic schemes to redistribute wealth.
The Trump accounts are also overly restricted and needlessly complex. Access to one’s own savings still requires taxes at withdrawal, and allowed spending is limited to a narrow band of government-approved uses, defeating the very tax-advantaged flexibility that could make the savings accounts valuable in the first place. For most Americans, these accounts will be functionally useless except to receive and hold whatever government funds are deposited, making them less a tool for building generational wealth and more a temporary transfer program wrapped in red tape.
A far better approach is to create universal savings accounts (USAs), a simple, flexible savings vehicle available to all Americans. Under the USA model, individuals could contribute up to $10,000 of after-tax income annually and withdraw the funds tax-free at any time for any purpose. No complex rules. No government micromanagement of spending decisions. Only a clear signal that saving is good and will not be punished by the tax code.
If lawmakers are serious about promoting saving and financial independence, they should restructure Trump accounts to work more like previous proposals for USAs.
Scale Back Tax Subsidies
The House bill adds or expands at least 20 tax credits, deductions, and exclusions. Each one entails fiscal costs, adds complexity, opens new avenues for tax avoidance, and delivers little in the way of long-term growth. Limiting these new or expanded provisions will help offset the revenue reductions from expanding and making permanent the most pro-growth provisions.
The Senate should find ways to:
- Scale back the House’s new $40,000 state and local tax (SALT) deduction cap for taxpayers earning less than $500,000. The previous cap was $10,000. The right answer is full elimination of the SALT deduction for individuals and businesses.
- Remove or add stricter limits to Trump’s campaign pledges to exempt tips and overtime pay from taxes. The $4,000 expansion to the deduction for the elderly should also be scaled back or eliminated.
- Remove the new $5 billion scholarship tax credit, which is unconstitutional, threatens deeper federal control of private education, and could stall the forward progress states have made on local education freedom.
- Remove the expanded employer-provided childcare credit, which will encourage compensation in care services instead of wages and tie child care to employment (replicating the failed model of US health insurance).
Other areas of improvement would eliminate credits for paid family leave and low-income housing as well as other tax preferences for student loan repayment, seafood processing, rural development, pass-through businesses, farmers, adoption costs, and biofuels. The bill accelerates the end of many of the Inflation Reduction Act’s (IRA) green energy tax credits but could still include a more comprehensive repeal.
The Senate Has a Lot of Work to Do
The House tax bill gets some big things right, like extending lower tax rates and repealing many of the IRA’s green subsidies, but it falls short of delivering the kind of principled, pro-growth reform Republicans have long promised.
The Senate now has an opportunity to improve the House bill. That means making expensing permanent and more broadly available, rejecting new tax-based entitlements like Trump accounts, and scaling back politically driven carve-outs. The Senate should keep its focus on economic growth and use this moment to fix, not further fracture, the tax code.
