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Business Perspective: Congress can spur economic growth with R&D tax credit fix

Business Perspective: Congress can spur economic growth with R&D tax credit fix

Congress can boost American innovation by restoring the ability for U.S. companies to immediately deduct 100% of their research and development expenses.

This was the case from 1954 through 2021, but 2017 federal legislation requires companies to amortize R&D costs over five years, or 15 years for R&D activities abroad. The change makes R&D more expensive and reduces companies’ ability to compete globally at a time when innovation is essential.

Sen. Maggie Hassan, D-N.H., and Sen. Todd Young, R-Ind., have sponsored a bill, S.866, the American Innovation and Jobs Act, which would restore full expensing, increase the cap for the refundable R&D tax credit for small businesses and startups and expand eligibility for the credit.

In announcing the bill, Hassan said, “When American companies invest in research and development to develop new products and technologies, it stimulates our economy, promotes job growth, and helps us compete with foreign adversaries. I urge my colleagues on both sides of the aisle to support this bill that will spur innovation.”

The bill is cosponsored by a bipartisan group of 40 senators and work is ongoing to secure majority support. Sen. Hassan’s office recently told me this is her top tax priority, and they are cautiously optimistic the act will pass in early 2024, adding they frequently hear from New Hampshire businesses about this issue.

BIA member LDI Solutions is among businesses sounding the alarm. CEO Lou LaMarca told me the Rochester-based manufacturer had to depreciate its R&D expenses over six years starting in 2022, instead of deducting them in the year they were incurred. The result is R&D is not fully expensed and is treated as profit.

“So, we have to pay tens of thousands of dollars of extra taxes even though we spent the money and don’t have the cash,” LaMarca said. “This is a huge burden on small business and an incredible disincentive to R&D.”

The National Association of Manufacturers supports the bill as does the Business & Industry Association, New Hampshire’s statewide chamber of commerce and NAM’s New Hampshire affiliate. The U.S. Chamber also backs the bill and reports 86% of small businesses support reinstating the R&D tax credit and making it permanent.

New Hampshire is home to a robust manufacturing sector and rapidly developing life sciences industry that includes biofabrication. Fixing the R&D tax credit will promote their success and growth. The U.S. Economic Development Administration in October designated ReGen Valley, led by the Advanced Regenerative Manufacturing Institute in Manchester, as a “Tech Hub.” The program seeks to ensure the industries of the future start, grow and remain in the United States.

NAM, in announcing its support for the bill, said R&D is the lifeblood of manufacturing, driving innovation, competitiveness, economic growth and the creation of high-paying jobs. But NAM warns this is at risk unless Congress repeals the change in the tax treatment of R&D expenses. The U.S. Chamber said the current R&D tax credit law makes the United States a global outlier as only two other developed countries have such counterproductive policies.

Businesses don’t conduct R&D to lower their income tax bill. It’s a considerable expense with inherent risk, particularly for startups. Keeping money in their hands allows for continuous investment that hopefully propels companies forward and turns them into much larger taxpayers.

The United States relies heavily on private sector-funded R&D. According to the National Center for Science and Engineering Statistics, in 1964, federal R&D expenditures accounted for 1.86% of GDP and 67% of all domestic R&D. By 2020, federally funded R&D had fallen to 0.7% of GDP while U.S. businesses accounted for 73% of domestic R&D.

While the American Innovation and Jobs Act has bipartisan support it may take more bipartisan support to pass it. Democrats would like to pair an extension of the refundable child tax credit boost implemented in the American Rescue Plan with restoration of the R&D tax credit policy. The Census Bureau in October 2022 estimated the expanded credit alone lifted almost 3 million children out of poverty. Congress allowed the expanded child tax credit to expire at the end of 2021.

It may take compromise by the parties to achieve both goals, but compromise is an essential part of sound governance. One can point to the New Hampshire Legislature’s bipartisan compromises that led to what was called a “miracle” and historic state budget this past spring as an example of doing what’s best for the people.

Lifting children out of poverty puts them on a better track to adulthood and that can be seen as investing in America’s future workforce. New Hampshire is not alone with worker shortages. It’s happening across the country. Pairing a renewal of the expanded refundable child tax credit with fixing the R&D tax credit can be viewed as a dual investment in Americans and America’s future.

Michael Skelton is president and CEO of the Business & Industry Association. Visit for more information.

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