AIM and others petition Congress to reverse the amortization of certain R&D expenditures
October 13, 2022 - On October 11, AIM, along with many other associations and companies, sent a letter organized by the National Association of Manufacturers (NAM) to the top congressional leadership of the United States stating their position against the R&D portion of the Tax Cuts and Jobs Act (TCJA) of 2021. The TCJA stopped the immediate deductibility of qualifying R&D spending, making it instead amortized over 5 years for some parts and 15 years for other parts. This change applies to qualifying R&D spending starting in 2022.
The letter sent to Congress by AIM and others gave several reasons for reversing this change in the tax law. They note that “innovation is one of America’s greatest strengths and a significant contributor to job and economic growth, competitiveness and national security. It is for these reasons that for nearly 70 years the tax code has recognized the importance of research and development by allowing businesses to fully deduct their R&D expenses in the same year.”
"In the area of innovation, we find that this legislation could impact where companies locate their intellectual property. Companies who perform R&D on a global basis will do so where the tax incentives give them the most benefit. China currently provides a super deduction for R&D expenses up to an extra 100% of eligible R&D expenses in addition to actual R&D expenses. Therefore, China and other countries will have the benefit of the intellectual property instead of the United States. It will also mean a reduction in R&D spending by those companies who are fully domestic, reducing innovation within their businesses."
The letter also points to a study by EY for the R&D Coalition that finds this action will also lead to a loss of more than 20,000 R&D jobs in the first five years with the number of lost jobs rising to nearly 60,000 over the following five years. (Click here for the full study.) Moreover, when accounting for the spillover effect from R&D spending, nearly three times as many jobs will be affected.1 This same study also found that for every $1 billion in R&D spending, 17,000 jobs are supported in the U.S.
Global competition is stunted with a lack of tax incentives for R&D. Even though the United States was one of the first to enact tax incentives for R&D, other nations have followed suit. With this legislation, the United States becomes one of only two developed countries requiring the amortization of R&D expenditures. The United States is a member of the 36 country Organization for Economic Cooperation (OECD). In 2018 the United States ranked 26th out of the 36 OECD nations in the value of R&D tax incentives. This ranking is sure to drop further with this action, along with the competitiveness of the United States in the global economy.
The final argument given in the letter is that the amortization requirement also poses a serious threat to our national security if not reversed. As the National Science and Technology Council has noted, R&D investments “are essential to ensure that the United States remains able to secure and protect the American people in the face” of other countries increasing support for R&D.
For these reasons, AIM, along with the other companies, respectfully urged Congress to act without delay to ensure that the tax code continues to support innovation as doing so will help secure America’s global leadership in innovation and its economic and national security future.