The United States tax system has become increasingly distortionary and inefficient, with hundreds of highly targeted tax provisions that erode the potential for tax system neutrality and greater economic growth. A major source of inefficiency is the treatment of capital investment, both for physical capital and for human capital. The profusion of provisions has resulted in a system where taxes can be the primary determinant in whether to undertake new investment, what form the investment should take, and how to finance the investment.

   Since 2001, several pro-growth tax policy changes have been enacted which have reduced the distortionary effect of taxes on investment decisions. This section discusses investment distortions in the tax system prior to 2001 and analyzes how changes since that time have reduced distortions and stimulated economic growth. Overall, the pro-growth policies enacted since 2001 have helped lessen the impact of the recession and have led to greater investment and overall economic growth.