The Abundance Agenda Has a Tax Problem

Cato Institute’s Adam Michel and I have a new piece out at Civitas on what the abundance conversation is still overlooking.

This is part of a broader series we’re working on. Like many on the free market side, we welcome the renewed focus on abundance. It is encouraging to see parts of the left rediscover something economists have long understood, namely that overregulation makes it harder to build, invest, and grow.

But the conversation remains incomplete. As we noted a few months ago, the current debate over abundance focuses almost entirely on regulation. It says very little about the tax code, which often works in the same direction, quietly undermining supply, investment, and mobility. Our latest piece focuses on housing, but the problem extends more broadly to infrastructure and industrial construction.

That blind spot matters because the tax code is not neutral. Jack and I have talked about that a bunch of places, but see here. It does not simply raise revenue. It shapes behavior. In housing, it does so in two especially damaging ways.

First, it freezes the existing housing stock.

The combination of demand-side subsidies and capital gains taxes discourages turnover. Policies like the mortgage interest deduction push prices up without increasing supply. At the same time, capital gains taxes create a lock-in effect that discourages people from selling homes that no longer fit their needs.

The result is misallocation. Larger homes sit underused. Younger families struggle to buy. Housing doesn’t move to its highest-value use.

Second, and more broadly, the tax code discourages building, whether housing, infrastructure, or industrial capacity.

While policymakers have improved the treatment of equipment, most structures are still penalized through long depreciation schedules. That applies not just to apartment buildings, but to office space, energy infrastructure, and industrial facilities.

“The result is a higher after-tax cost of building and an additional tax on structures relative to other investments.”

This is a systematic bias against building things. It lowers the return to long-lived capital and makes fewer projects viable. In other words, even if you fix permitting, you are still taxing construction more heavily than other forms of investment.

The fixes follow the diagnosis. The two problems require two different solutions. For the existing housing stock, the ideal fix is to eliminate the capital gains tax altogether and move to a consumption-based tax that stops penalizing saving and investment. Incremental steps such as indexing capital gains for inflation, expanding the primary residence exclusion, and relaxing 1031 exchange rules would help at the margins, though each requires careful design to avoid creating new distortions. For new construction, the priority is straightforward: extend the full immediate expensing that equipment now enjoys under the Big Beautiful Bill to all structures, residential and commercial alike. That single change would reduce the after-tax cost of building more meaningfully than most permitting reforms currently under discussion.

Over at his Substack, Adam rightly notes that some of the reforms are prime for being included in Reconciliation 2.0. He adds a few ideas about how to pay for them.

The broader point is simple: If you are serious about abundance in housing and construction in general, you cannot focus only on zoning and permitting. You also have to look at the tax base. Right now, the tax code rewards holding assets over reallocating them, consumption over investment, and incumbents over new entrants. That is the opposite of an abundance agenda.