Michael Strain of the American Enterprise Institute surveys economic policies that could boost American prosperity.

[T]he strength and endurance of Trump’s legacy will depend on whether his policies advance long-term prosperity. As the saying goes, nothing succeeds like success. His first big opportunity will come immediately. With key provisions of Trump’s 2017 Tax Cuts and Jobs Act (TCJA) – including lower individual tax rates and expansion of the child tax credit – set to expire at the end of 2025, Congress and the new administration will spend a considerable portion of the next year passing a new tax package.

Much of the focus will be on avoiding tax increases on households. But given that Republicans will control both the House of Representatives and Senate for the next two years, Trump also has an opportunity to extend tax cuts for businesses. Under an expiring TCJA provision, businesses are allowed to deduct the full cost of certain investments in the year the spending occurs, rather than over time. Such “full expensing” encourages more investment by increasing returns. The 2017 business tax cuts are already boosting investment and workers’ wages, as well as supporting multinational corporations’ domestic operations.

During next year’s tax negotiations, Trump should make full expensing a permanent part of the tax code, as he did with the corporate-rate reduction in 2017. He should aim to reduce the corporate rate further and to strengthen businesses’ incentive to engage in research and development.

Of course, additional tax cuts will increase deficits and debt, which, over the longer term, will reduce investment and weaken the positive economic effects of the tax cuts. There are three sources of revenue that Trump and Congress can tap to offset the revenue losses from reducing business taxes.

First, the Inflation Reduction Act of 2022 (IRA) created around two dozen tax credits to encourage domestic clean-energy innovation and manufacturing, and provides a $7,500 credit for individual purchases of new battery-powered or hydrogen fuel-cell electric vehicles. The law will likely cost more than $1 trillion in its first decade, and trillions more after that. Congress and Trump should repeal the IRA and use part of the revenue to cut business taxes.