Tax reform is essential for the success of the 'abundance agenda' to take effect.

Tax reform is essential for the success of the 'abundance agenda' to take effect.

Building, building, building - it's the cure for our nation's deepest wounds, and a growing chorus of politicians from all sides is starting to agree. They call it the "abundance agenda," and it's all about cutting through red tape, streamlining permits, and overhauling zoning codes to allow for more housing, energy infrastructure, healthcare services, innovation, and opportunities.

But there's a problem. Even if we tear down every bureaucratic hurdle, the tax code could still be a killer for those who want to build more. If the U.S. is serious about abundance, we need to take a hard look at the tax code and make some changes.

Here's the deal: Even with all the permits and green lights in the world, developers might walk away from a housing project if the after-tax return doesn't make sense. And a clean-energy entrepreneur with a breakthrough idea but high taxes on the horizon? Forget about it. Permission to create and produce is great, but without capital flowing to new ideas and profits rewarding those who execute on them, it's all just hot air.

The tax code penalizes investment at every stage. There's corporate tax, taxes on dividends, capital gains, and even a tax on savings and investment called inflation. In some cases, the effective tax rate on investments can go above 100%. Yikes!

But it's not just about the tax rates. It's about what is subject to taxation too. Things like research and development expenditures and investments in equipment are no longer eligible for immediate deductions, meaning firms must spread those deductions out over time - sometimes, decades. That's hardly innovation-friendly!

The result? A slow, painful bleed of investment away from the very sectors that the abundance agenda wants to grow. And it's happening at a time when we need more private capital than ever to deliver abundance in areas like artificial intelligence, energy infrastructure, and biopharmaceuticals. But here's the catch - current policy often deters it.

Don't just take my word for it. A landmark study from the Organization for Economic Cooperation and Development ranked corporate income taxes as the most harmful to economic growth. The International Monetary Fund has shown that foreign direct investment is highly sensitive to tax rates. Research by the former chair of President Obama's Council of Economic Advisers shows that tax increases reduce economic growth by two to three times the revenue they raise, with most of that impact coming from cratering investment.

In other words, if we want to see more building happening, we need to fix our tax code. But how?

First, we need to restore and make permanent full expensing so businesses can deduct the cost of new research, equipment, and structures entirely in the year when they invest. This reduction in the cost of capital encourages entrepreneurship in sectors like biotech and clean energy.

Second, we need to lower rates on capital gains, dividends, interest, and business income to reduce the double taxation of savings and investment.

And we need to treat these reforms as just the beginning toward more neutral, more consumption-based taxation that eventually allows full deductions for savings and investment. This is a starting point that would make the capital necessary for abundance flow more freely.

But we can't forget about the other side of the fiscal coin: government spending. Without spending restraint, we're setting ourselves up for a push for higher taxes and the convoluted tax distortions and disincentives that undermine growth.

Many in the abundance coalition support large-scale public subsidies and redistribution, but an economy weighed down by debt and taxes will struggle to deliver broad-based prosperity fueled by innovation and capital. An abundant economy will do more for lower-income Americans than redistribution ever could.

The abundance agenda has given us a powerful new language to describe what's holding America back. When businesses invest, workers gain better tools and higher wages. When capital flows, housing gets built, energy gets delivered, and innovation scales. But unless we extend the abundance agenda to fiscal reform, we risk stopping halfway. Building is about more than permits. It's about making sure the incentives - and the capital - are there to finish the job.

Veronique de Rugy is a professor at George Mason University and a senior research fellow at the Mercatus Center. Adam Michel is director of tax policy studies at the Cato Institute.

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Enrichment Data:

The abundance agenda requires simultaneous tax reforms to incentivize private investment and regulatory overhauls to accelerate production, alongside mechanisms to distribute gains equitably. Here’s how these elements interact:

1. Investment Incentives: Current tax structures often penalize long-term investments.
2. Capital Allocation: Full expensing—allowing immediate deductions for capital investments—reduces the cost of capital.
3. Fiscal Burden: High tax rates or inefficient bases can shrink the economic "pie" by deterring private investment.

To pair fiscal and regulatory reforms:

• Tax-Base Adjustments: Prioritize reforms like full expensing and R&D deductions to lower barriers to innovation-driven sectors.
• Streamlining Approvals: Reduce administrative delays in permits for housing and energy projects.
• Workforce Development: Implement tax credits or subsidies for training programs to address labor shortages in critical industries.
• Equity Measures: Incorporate labor protections and community benefits to ensure gains are widely shared.

Challenges and trade-offs:

• Political Economy: Fiscal reforms face resistance from groups benefiting from current tax carve-outs.
• Policy Design: Overemphasis on supply-side measures risks neglecting demand-side issues like wage stagnation, necessitating paired policies such as enhanced collective bargaining rights.

In summary, the abundance agenda requires simultaneous tax reforms to incentivize private investment and regulatory overhauls to accelerate production, alongside mechanisms to distribute gains equitably to avoid exacerbating inequality or stalling due to political resistance.

1. Policymakers are championing the "abundance agenda" to streamline permits, overhaul zoning codes, and enhance infrastructure, including healthcare services, energy infrastructure, and housing.
2. However, the tax code remains a significant impediment to building projects, with developers and clean-energy entrepreneurs potentially abandoning ventures due to unfavorable after-tax returns.
3. In the United States, the tax code penalizes investment at every stage, from corporate tax and taxes on dividends, capital gains, and savings to high effective tax rates on investments.
4. Numerous studies, such as the Organization for Economic Cooperation and Development and the International Monetary Fund, have shown that high taxes and corporate income taxes inhibit economic growth.
5. To encourage more private investment, Veronique de Rugy and Adam Michel propose restoring full expensing, lowering rates on capital gains, dividends, interest, and business income, and transitioning to more consumption-based taxation.
6. Additionally, spending restraint is essential to prevent higher taxes and the subsequent distortions and disincentives that undermine growth.
7. In an abundant economy, innovation and capital generate more broad-based prosperity than redistribution ever could.
8. Republicans have discussed increasing taxes on millionaires, but this approach may stifle investment and economic growth, ultimately hindering the abundance agenda's goals.
9. In Los Angeles, California, and across the nation, modernizing the tax code and focusing on fiscal discipline can set the stage for a surge in building, innovation, and economic expansion.
10. The general news media must frequently discuss these issues, providing insights and opinions on tax policy, infrastructure, politics, and policy-and-legislation to equip readers with the knowledge necessary to drive meaningful change.

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