Trump-era tax cuts and full expensing offer a pro-growth alternative to IRA subsidies, boosting innovation, ensuring business certainty, and advancing clean energy.

In the current discussions of The One Big Beautiful Bill, the future of the energy tax credits in the Inflation Reduction Act (IRA) hangs in the balance. Defenders of the IRA as currently constructed have argued that removing the credits will upend investments and increase energy prices. But there’s a better way forward that doesn’t use the tax code to pick winners and losers and won’t break the bank. 

Technology-neutral, pro-growth tax policy will supercharge economic growth and innovation across industries while advancing environmental goals more effectively than the current patchwork of tax credits. Making immediate depreciation permanent is far better than maintaining the endless green giveaways.

Rethinking Green Subsidies 

A promising option is to rationalize the Inflation Reduction Act’s (IRA) green giveaways. The Biden administration’s Treasury Department initially estimated the IRA’s energy subsidies to cost $270 billion over the following ten years. The best estimates now put the figure at six times more, approaching $2 trillion over the next decade. Congress has an opportunity to enact fiscal sanity and remove market distortions in the energy sector by replacing the sector-specific subsidies in the IRA with permanent, broad-based economic benefits found in the Trump tax cuts. 

The Case for Full Expensing

A wonky but incredibly important element of the Tax Cuts and Jobs Act (TCJA) was the provision of immediate expensing to businesses. Also known as full expensing, the policy allows businesses to write off investments in equipment, factories, and research and development in the year they are incurred​, saving on their tax bills. 

Unfortunately, the TCJA could only make this improvement temporary because it has a fiscal cost. As such, immediate depreciation is fading out of the tax code. This discourages investment in the capital that supports long-run economic growth. A business that invests in research and development (R&D) has to pay taxes on that investment. The simple logic is that if you tax something, then you get less of it. 

Immediate depreciation boosts economic growth by lowering the “hurdle rate” for new investments. It encourages businesses to replace aging equipment, build new factories, and develop innovative technologies. According to the Tax Foundation, making full expensing permanent would boost GDP, raise wages, and create almost 400,000 jobs. Permanent full expensing benefits everyone, not just green industries. 

That’s not to say that full expensing has no environmental benefits. In fact, it promotes a range of pro-environmental investments without requiring taxpayers to foot the bill. Companies would find it in their economic interest to invest in energy-efficient upgrades, water-saving technologies, and pollution-mitigation equipment. Crucially, expensing also fosters innovation in pro-environmental tech by accelerating research and development efforts. Innovators, not bureaucrats, should determine America’s energy future. That looks like better batteries, more efficient solar panels, small modular nuclear reactors, and improvements that only tinkerers in their garages and labs will imagine.

Certainty Without Subsidies

A permanent change to the tax code reflects an argument frequently made by the IRA’s defenders: Immediate depreciation offers precisely the kind of certainty that businesses crave. A slower-changing tax code stabilizes the vagaries of Congress from year to year. If certainty is so fundamental, then the same advocates for maintaining the IRA’s sector-specific subsidies should line up in support of permanent expensing. Yes, those collecting public funds from existing green subsidies will have to relinquish them. But every sector will benefit from smart tax policy. Rather than chasing subsidies, companies will thrive by providing the best value to the consumer.

Environmental challenges warrant thoughtful reflection and policy action. These may even require additional action from Congress. Yet voices on every side can acknowledge that policies intended to support newborn industries in the 1990s are outdated as we approach 2030. Wind and solar are now capable competitors against traditional fuel sources. 

Fiscal Responsibility Meets Clean Energy Innovation

The political moment is ripe for the proposal we put forward to swap out mature energy subsidies for technology-neutral, pro-growth provisions. Republicans wary of fiscal excesses in the IRA can champion full expensing as a fiscally responsible, pro-growth, environmentally positive alternative. Democrats who seek environmental progress and economic fairness can embrace expensing as a credible path toward clean energy innovation.

Replacing expensive subsidies with full expensing presents a unique opportunity to align the interests of economic growth, environmental stewardship, and fiscal responsibility. It offers a politically viable compromise: green growth without favoritism.

A permanent extension of the Trump tax cuts represents simple yet transformative reform that delivers a healthier economy, a cleaner environment, and genuine certainty for American businesses.

About the Authors: Nick Loris and Josh T. Smith

Nick Loris is the Executive Vice President of Policy at C3 Solutions. Loris studies and writes on topics related to energy and climate policies, including natural resource extraction, energy subsidies, nuclear energy, renewable power, energy efficiency, as well as the ways in which markets will improve the environment, reduce emissions, and better adapt to a changing climate.

Josh T. Smith is the energy policy lead at the Abundance Institute and a visiting fellow with C3 Solutions. His work is focused on creating energy abundance through energy innovation. Previously, he directed research programs for the Center for Growth and Opportunity at Utah State University.

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