Do existing tax rules weaken OBBBA’s pro-investment incentives?

For most companies, changes enacted under the One Big Beautiful Bill Act (OBBBA) should lower tax bills and the cost of investing in the U.S. The law pairs broad individual tax cuts with business incentives designed to encourage domestic investment. It restores full expensing for U.S.-based research and development, reinstates 100% bonus depreciation for equipment purchases, temporarily allows expensing for new U.S. manufacturing facilities, and loosens limits on interest deductions. Yet for large corporations, the OBBBA’s benefits may prove elusive.

Congress has layered new incentives onto a system already dense with overlapping rules. Firms are currently determining how OBBBA incentives interact with the existing maze of tax rules, including the 15% Corporate Alternative Minimum Tax (CAMT), the Base Erosion and Anti-Abuse Tax (BEAT), Foreign-Derived Intangible Income (FDII) deduction, interest deductibility limits, and foreign tax credit rules and limitations.

Each of these can offset or neutralize the new law’s intended pro-investment effects. This raises questions about whether OBBBA provisions can deliver the investment boost lawmakers intended.

CAMT can reduce new OBBBA incentives

The CAMT offers a clear example of how new tax incentives can be limited by existing rules. Large corporations are required to measure profit in two ways, each serving a different purpose:

• Taxable income, defined by the Internal Revenue Code, determines a corporation’s regular federal tax bill.
• Financial statement income, often called “book income” and governed by Generally Accepted Accounting Principles (GAAP), provides information about a firm’s financial health to investors, creditors, and the public.

The two income measures often diverge. The gap between them widens when a new tax provision lowers taxable income but not book income.

Complicating matters, the CAMT, enacted in 2022, added a third measure of profit: Adjusted Financial Statement Income (AFSI). AFSI starts with book income and adjusts it to reflect certain tax deductions and credits. Large corporations, with average adjusted book income above $1 billion, must pay the greater of their regular tax liability or 15% of AFSI under the CAMT.

Because OBBBA’s provisions typically reduce taxable income without affecting book income, they widen that gap and can make the CAMT a binding constraint. In those cases, the new incentives do not reduce total taxes paid, even though they reduce taxable income. Below are three examples.

Domestic R&D Expensing: The OBBBA permanently restores immediate full expensing for domestic R&D, beginning in 2025. Lawmakers adopted this change to strengthen incentives for innovation and reduce the after-tax cost of performing research in the U.S.

However, research spending is already fully expensed when incurred for book purposes. As a result, OBBBA’s permanent restoration sharply lowers taxable income but leaves book income, and therefore AFSI, unchanged. The gap between the two grows, increasing the likelihood that a firm will owe CAMT instead of benefiting from the OBBBA tax cut.

Business Interest Deductibility: The OBBBA also allows businesses to deduct more interest expenses starting in 2025. This reduces financing costs for capital-intensive industries and supports investment at a time of higher interest rates.

Since book income already reflects the full amount of interest expense, this change only lowers taxable income, again widening the gap between book income and taxable income, making the CAMT more likely to apply.

Manufacturing Facility Expensing: The OBBBA introduces a new temporary 100% deduction for new manufacturing facilities built between 2025 and 2028 and placed in service by 2030. This change was intended to promote on-shoring and accelerate domestic factory construction.

It is uncertain how the CAMT will affect this provision. Unless Treasury extends the same special adjustment that already applies to equipment (which synchronizes depreciation rules for tax and AFSI), the pattern will repeat: Taxable income will fall immediately while AFSI will decline slowly, increasing CAMT exposure.

The tension is systemic

The proliferation of minimum taxes—through regimes such as the CAMT, Global Intangible Low-Taxed Income (GILTI), and the new global minimum tax—reflects a recurring tension in corporate tax policy. When large, profitable companies appear to pay little or no tax, policymakers respond by layering on minimum taxes to ensure that large firms “pay something.” But to preserve popular incentives, like accelerated depreciation or foreign tax credits, lawmakers often leave those provisions intact even as they add new minimum taxes, complicating the system without necessarily raising additional revenue.

Each new layer, intended to fix a problem, instead creates and amplifies a mismatch between policy goals: promoting investment while preserving the tax base.

Implications beyond OBBBA

Over time, the U.S. corporate tax system has evolved through layers of rules. Each rule aims to achieve a specific policy goal but is rarely coordinated with the rest. Measures meant to encourage domestic investment must coexist with others designed to curb tax avoidance and close loopholes.

The goal of OBBBA business tax reforms was to boost domestic investment through powerful tax incentives. Yet when those incentives collide with a web of existing rules, their impact can fade. The CAMT is just one example. Similar obstacles arise under other minimum tax regimes, such as GILTI and the global minimum tax, which create the same tension between encouraging investment and protecting the tax base.

Unless Congress or Treasury undertakes broader reform to simplify and align these rules, new “pro-growth” measures will continue to deliver only partial gains within a system designed to limit them.