By Randy Krehbiel
Tulsa World, Okla.
(TNS)
Three tax provisions intensely sought by business interests, including Oklahoma’s chambers of commerce and oil and gas sector, carry a heavy share of Republican hopes that their One Big Beautiful Bill Act will trigger one big, beautiful boon in the U.S. economy.
The provisions are not new. One expands and makes permanent existing policy for small businesses, while the other two reinstate capital and research and development deduction rules that expired in 2022.
Analyses by the Tax Foundation and the Bipartisan Policy Center estimate that the three provisions will cost at least $1.4 trillion in foregone revenue over the next decade but will create 325,000 jobs and boost gross domestic product about 1%.
The hope is that, in the long run, the economic gains will cover the cost not only of those provisions but at least part of the One Big Beautiful Bill Act’s projected $3.3 trillion to $5.5 trillion negative effect on the national debt.
“I think we just have to continue through this process,” Rep. Kevin Hern (R-OK) said last week in an interview. “The real test will be how many job openings are created? How many people do we put to work?”
That seems to be the fundamental question for Hern, who has become one one of the primary drivers of Republican tax policy in the U.S. House of Representatives. While many question the fairness of the reductions introduced eight years ago during the first Trump administration and anchored more deeply into the tax code last month, Hern says taxes—and especially business taxes—must conform to economic reality.
“If you’re going to create tax policy, you better get a return on investment,” he said.
“Sometimes we forget that we’re not just competing with Oklahoma against Texas or Texas against Floriday. We’re competing on the world stage, whether we’re competing with Taiwan for advanced chip manufacturing or … China for enhancement in nano technologies or pharmaceutical companies,” Hern said.
“At the end of the day, you can’t lose money in one country (when you) have the opportunity to make money in other countries.”
The three most prominent business tax features of the OBBBA are:
- Expanding and making permanent the 199A income tax deduction for “pass-through” businesses;
- Immediate deductibility of business expenses, including permanent structures and oil and gas intangible costs; and
- Immediate deductibility of research and development costs.
The 199A provision applies to the 32 million mostly small businesses in the U.S. that do not pay income taxes but pass their profits through to their owners.
Until 2017, that income was taxed at the owners’ individual rate, which was generally lower than the corporate rate.
In 2017, however, the federal corporate income tax rate was reduced from 35% to 21%, meaning small businesses would either have to incorporate or pay higher taxes.
To prevent that, Congress allowed pass-throughs to claim a 20% deduction of business income, which brought those enterprises in line with the corporate rate.
The other two provisions are geared more for larger operations, many of which operate on an international scale, although they can also apply to small businesses.
These provisions allow businesses to immediately write off most capital and research and development expenditures instead of spreading them out over time. China, by comparison, allows an immediate $2 deduction for every $1 of R&D expense.
One potential beneficiary is Oklahoma’s oil and gas sector.
Besides the renewed write-offs for drilling and manufacturing expenses, the industry could see a benefit from new tax credits for carbon capture and what amounts to the elimination of fines on methane gas emissions going forward.
Although Oklahoma has little oil and gas production on federal land, Oklahoma-based companies could benefit from reductions in federal royalty rates.
How much Oklahoma could benefit from immediate expensing for research and development is unclear. A February 2023 Information Technology and Innovation Foundation report predicted a relatively small impact for Oklahoma, but that was before legislation approved this year offering a state incentive for R&D.
Less than 1% of state economic activity is attributable to research and development, and much of that is outside the five sectors that make up the bulk of U.S. activity.
The U.S. allowed immediate expensing of research and development to expire in 2022. Public data on the effect is scarce, but Hern said the impact was immediate.
“You actually saw the trends,” he said. “This is federal reporting that research and development has definitely slowed the last two years, and that’s why I’m anxious to see” what happens.
By all measures, the United States leads the world in research and development spending, with more than $885 billion in 2022, the most recent year reported by the National Science Foundation.
China is second and by some accounts closing, although not as fast as it once was.
More than three-quarters of U.S. R&D is privately funded, which likely will need to increase in coming years, especially on basic research, because of cuts to federal research spending.
Hern predicts that all of this will lead to growth in American manufacturing. He noted that the latest Bureau of Labor Statistics reports show more than 400,000 job openings in that sector.
“We’re probably going to have another million or 2 million openings in manufacturing over the next two to three years, and we’re already short in that area, so we got to work through our career attacks to make sure we’re developing welders, electricians and machinists,” he said.
Hern said “a ton of capital back from around the world” is coming into the U.S.
“We’re seeing pharmaceutical companies come back. We’re seeing manufacturing come back.
“We’re seeing smaller steel, more modernized steel manufacturing, come back from around the world.”
Photo caption: Rep. Kevin Hern, R-OK (Facebook)
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© 2025 Tulsa World, Okla. Visit www.tulsaworld.com. Distributed by Tribune Content Agency LLC.
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