Protect American Innovation - fix the R&D tax issue
By Morgan Mundell, American Council of Engineering Companies of Missouri, and Ray McCarty, Associated Industries of Missouri
Missouri businesses collectively employ millions of residents across all sectors of the state's economy. Since tax policy plays a critical role in businesses' ability to thrive, create jobs in Missouri, and effectively compete in today's global economy, we urge Missouri's congressional delegation to take immediate action to restore the deductibility of research and development expenses.
Missouri businesses are currently facing substantial tax bills this year due to a recent change that penalizes the research and innovation that are vital to the services provided to Missouri residents. We urgently need your help to repeal the research and development (R&D) amortization mandate before the end of 2023.
For many decades, the tax code incentivized innovation by allowing businesses to deduct expenses related to research and development in the year they occurred. However, starting with the 2022 tax year, they have been required to amortize those expenses over five years. This change has created a significant new tax liability for Missouri businesses. At a time when Missouri is striving to grow its economy, hire more people, and invest in training and technology to remain competitive, this tax change severely limits the ability of employers to do so. The amortization requirement is especially burdensome for small firms but affects businesses of all sizes throughout the state.
Innovation is at the core of our firms’ operations and how we deliver value to our clients. Missouri industry innovates daily to make our roads and bridges safer, our waters cleaner, develop new and improved technologies, products, and services, and make our buildings more energy efficient. Unfortunately, these essential services are undermined by an amortization requirement that punishes Missouri businesses for innovations that serve the public’s best interests.
According to the National Association of Manufacturers, innovation through private sector research and development activities significantly contributes to job creation, economic growth, competitiveness, and national security. The private sector accounts for over 75% of total research and development spending, with small businesses alone contributing approximately $90 billion to all private-sector R&D investments. With wages and salaries making up around 75% of R&D spending, the R&D amortization requirement is primarily a jobs issue, as R&D jobs pay an average wage of more than $155,000. Furthermore, every billion dollars in R&D spending supports 17,000 jobs.
We are encouraged by the growing bipartisan support to fix this mistake in the tax code and restore the deductibility of R&D expenses through the American Innovation and Jobs Act (S. 866) led by Senators Maggie Hassan (D-NH) and Todd Young (R-IN) and the American Innovation and R&D Competitiveness Act (H.R. 2673). However, we call on Missouri's congressional delegation to act now to protect Missouri businesses from a crippling tax burden and reinstate immediate R&D expensing. Doing so will not only assist Missouri employers and businesses but will also secure the U.S. as a global leader in innovation, incentivize job-creating investments, and strengthen America's competitiveness on the world stage.