James T. Brett
Updated: May 15, 2023
Viewpoint
Viewpoint: Tax code is stifling R&D
By James T. Brett
Here in New England, we are proud of our reputation as a global innovation hub. Our region is home to some of the world’s most innovative companies, in industries ranging from defense to life sciences to clean energy to technology. These businesses invest in ground-breaking research and development aimed at saving lives, combating climate change, safeguarding our national security, and more.
The U.S. tax code has encouraged such investments by allowing businesses to fully deduct qualified R&D expenses each year. However, under a provision of the Tax Cuts and Jobs Act of 2017 signed into law by former President Donald Trump, businesses must amortize or deduct these expenses over a period of five years. This provision went into effect for the 2022 tax year. This will ultimately make R&D more costly to conduct. The New England Council firmly believes the new R&D amortization requirement will halt and harm our region’s continued growth and leadership on the global stage.
As a result of this change, the U.S. is now only one of two developed countries requiring the amortization of R&D expenses. Comparatively, our nation’s competitors, such as China, provide a super deduction for R&D, which drastically increases the allowed amount deducted for companies who previously did not qualify. This change could result in companies relocating R&D facilities and funding out of the country because it will be more costly to do research in the U.S.
Fortunately, two members of Congress from New England are leading the bipartisan charge to reverse this harmful change in the tax code. Senator Maggie Hassan (D-NH) has partnered with Senator Todd Young (R-IN) to introduce the American Innovation and Jobs Act. In addition to allowing companies to fully deduct R&D expenses each year, Hassan’s bill would raise the cap over time for the refundable R&D tax credit for small businesses and startups, and expand eligibility for the refundable R&D tax credit so more startups can use it.
In the U.S. House of Representatives, Congressman John Larson (D-CT) has teamed with Rep. Ron Estes (R-KS) to introduce similar legislation, known as the American Innovation and R&D Competitiveness Act. Similar to the Senate bill, this proposal would allow companies to fully deduct R&D expenses each year.
The New England Council is proud to support both of these bills, and we urge others in the business community to encourage Congress to pass this legislation. Doing so will help ensure that the U.S. remains globally competitive, and will drive continued innovation and job creation right here in New England.
James T. Brett is the president & CEO of The New England Council, a regional alliance of businesses, nonprofits, and health and educational institutions dedicated to supporting economic growth and quality of life in New England.
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