A more neutral and consumption-based tax system would be a good idea — regardless of what China does.

Economic competition between the U.S. and China is a major focus of policy-makers, but it often devolves into counterproductive or unrelated protectionism and industrial policy. One thing should be simpler to agree on: The U.S. tax code should not be worse for businesses than the Chinese tax code. Yet, on some key areas, it currently is.

That’s the conclusion of Alex Muresianu and Erica York of the Tax Foundation, in a new blog post. They consider the following:

Obviously, copying Chinese tax policy would be a bad idea. China has an economy full of boondoggles, as large portions of economic production are guided by the Communist dictatorship rather than the needs of consumers. Effectively paying companies to do R&D creates bad incentives to overinvest in that relative to other areas, and outright exempting certain industries from taxation is about as flagrant a form of picking winners and losers as one could imagine.

Simply moving the U.S. tax system to be more neutral would be a better way to go. Muresianu and York recommend allowing businesses to write off 100 percent of investment in R&D and short-lived physical assets immediately. For long-lived physical assets, they recommend neutral cost recovery. “Under neutral cost recovery, investing firms would still spread deductions out over the course of an asset’s life, but they would adjust deductions for both inflation and a risk-free rate of return, which would be economically equivalent to immediate expensing,” they write.

They note that legislators, including Speaker Mike Johnson, already support some of these reforms. As tax policy becomes the biggest topic in Congress next year, it could be an opportunity to get some of these changes into law.

In the grand scheme of the federal budget, the ten-year costs of these broad-based policies are relatively low, at $623 billion, and produce some of the best bang for the buck in terms of economic growth. And Muresianu and York point out that they are certainly cheaper than the industrial-policy approach represented by the CHIPS Act and the so-called Inflation Reduction Act, which are projected to cost $1.2 trillion over the next ten years and will only benefit certain industries.

Moving towards a more neutral and consumption-based tax system would be a good idea regardless of what China does. But if comparisons to China are what legislators need to get them to see the light, so be it. China’s economy is flagging. A more pro-growth tax code would help the U.S. leave China in the dust.