Research and Development Expensing
Floor Speech
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Mr. ESTES. Mr. Speaker, it is a new year, and the House is already busy tackling issues important to Americans. Something that should be high on our list is advancing legislation that will benefit our economy, U.S. innovators, and American workers--and that is immediate R&D expensing.
Tonight my colleagues and I want to talk about how this critical provision encourages research and development in the United States, and, in turn, helps fuel job growth and keeps manufacturing inside our borders.
Recognizing this, for nearly 70 years the tax code allowed businesses to fully deduct their R&D expenses in the same year in which they were incurred. However, since the beginning of 2022, businesses have been required to spread out, or amortize, R&D expenses over 5 years for domestic R&D or 15 years for foreign R&D.
As you can see on this graph, since amortization took place, the growth rate of R&D spending has slowed dramatically from 6.6 percent on average over the previous 6 years to less than one half of 1 percent over the last 12 months.
This slump in U.S. R&D investment is hurting the American economy at a time when rising inflation is hurting workers and holding back job creators.
As companies spend far less on R&D, the sector is down by more than 14,000 jobs. Three-quarters of research and development spending is on salaries and wages, making R&D amortization primarily a jobs issue.
On the other hand, our main competitor, China, has seen its R&D investment increase by 400 percent in just two decades. While the United States' share of global R&D investment in 2019 had dropped to 30 percent, China's share had moved up to 24 percent--in fact, up from 15 percent in 2009, a jump of nearly 10 percentage points in 10 years.
They achieved this impressive growth by implementing the deduction of 200 percent on eligible R&D investments. Without action, the United States will fall even further behind.
But we have the solution, and it is backed by Members in 43 States and from both sides of the aisle.
On tax day of this year, I reintroduced H.R. 2673, the American Innovation and R&D Competitiveness Act. This bipartisan bill corrects the R&D amortization issue and will spur homegrown research and development. And we know that where R&D occurs, jobs and economic opportunities follow.
Mr. Speaker, the American Innovation and R&D Competitive Business Act has 212 cosponsors in addition to myself and a lead Democrat. Those are nearly evenly split between Democrats and Republicans. It is the 17th most cosponsored piece of legislation in this Congress. Tonight, my colleagues are going to help me share the decisive difference it would make for workers and innovators in each of their districts.
As I wrote in an op-ed in December, the best time to address R&D amortization was at the end of 2021. The best next time is now. We need to pass R&D immediate expensing for the American people and our U.S. economy.
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Mr. ESTES. Mr. Speaker, Mr. Arrington has obviously delved into this issue and particularly focused on economic growth and what the impact is in terms of the value for not just the economy and workers across the country but also the tax revenue to help make sure we can fund the operations here in government.
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Mr. ESTES. Mr. Speaker, Mr. Hern highlighted that it is so important for us to have a strong America. It means we need to have a strong economy and good-paying jobs for workers, which means we need to have these provisions that make things work and make the economy grow.
Mrs. MILLER of West Virginia. Mr. Speaker, I rise today to express my support for American innovation and to highlight the importance of a progrowth tax code.
The United States was built on resourcefulness and good ideas. The desire to be successful in whatever we do has made America the top place to live, work, and raise a family.
Part of what makes the United States the best place in the world to do business is that we respect our workforce and encourage them to think outside of the box.
Because of the Tax Cuts and Jobs Act, our tax code was strengthened, jobs were created, and the economy flourished. Some of the provisions have now expired. It is a problem. It is imperative that we make the TCJA permanent.
For example, if we cement the Tax Cuts and Jobs Act, we can reverse the current limitation on the deductibility of interest payments on business loans. That will save over 850,000 American jobs.
Another example is in research and development. While it was once a paid expense, R&D is now a cost that many small businesses cannot afford. China is subsidizing their R&D costs, giving them a huge advantage over the United States. Modernization and national security shouldn't suffer because of any lapsed tax change.
Our tax code should work for American workers and businesses and not against them.
Mr. Speaker, I thank Mr. Estes for this Special Order tonight.
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Mr. ESTES. Mr. Speaker, I am glad Mrs. Miller highlighted the impact on small businesses because that is one of the things that sometimes we think about, business provisions that affect large businesses, but small businesses are greatly affected as well by some of these provisions just because of being able to manage their cash flow.
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Mr. ESTES. Mr. Speaker, I thank Mr. Kustoff. It is so important, as he highlighted, to have innovation and to support that so that we can have good economic growth. That is a key thing that has always helped America over the long term.
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Mr. ESTES. Mr. Speaker, I thank the gentleman from Utah (Mr. Moore). It is important to talk about these very important issues.
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Mr. ESTES. I thank the gentleman. It is so important that the gentleman has taken such an active interest.
I now recognize for 2 minutes the gentleman from Alabama (Mr. Strong), a friend of mine, and a good guy.
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Mr. ESTES. I thank the gentleman for speaking about some of the important impacts on businesses within his district.
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Mr. ESTES. De La Cruz).
Ms. De La CRUZ. Mr. Speaker, I thank the gentleman for hosting this Special Order.
I stand before you today as a mom and a lifelong small business owner to champion the cause of small businesses by encouraging my colleagues to work swiftly to extend three vital tax provisions from the TCJA.
These provisions include the full expensing of critical research and development, the full expensing of investments in new equipment, machinery, and technology, and also business interest deductibility.
These provisions are tools that empower small businesses to drive innovation, create jobs, and make ``el Sueno Americano,'' ``the American Dream,'' a reality for families all across America.
I urge my colleagues to join me.
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Mr. ESTES. Mr. Speaker, it is great that we have so many people from so many different districts talking about issues that are important to them and seeing the wide impact across the country.
Mr. Speaker, I recognize for 2 minutes the gentleman from Texas (Mr. Moran), another member of the Texas delegation, and a good friend of mine.
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Mr. ESTES. Mr. Speaker, I appreciate the gentleman participating and highlighting how important it is in the Congressman's district and the impact on that part of the country in Texas.
Wichita, where I am from, is known as the Air Capital of the World for its pioneering role in the early days in American aviation. Today, in south central Kansas, it is brimming with companies continuing to push the limits of the aerospace industry, including in general and commercial aviation, but also space, defense, and unmanned aircraft systems.
All of these new advances in Kansas that developers, engineers, and manufacturers want require technology, and they require research and development, but these innovators tell me that the incentive just isn't there. Knowing that they have to amortize their R&D costs prohibits them from pursuing these technological advances. Let's change that by restoring immediate R&D expensing.
As I mentioned earlier, R&D expensing is primarily a jobs issue, and, without an incentive for home-grown R&D, the U.S. loses out on creating new jobs. As the R&D Coalition says, for every $1 billion of U.S. R&D spending, 17,000 jobs earning $1.4 billion are supported in the United States.
They also note that, if the R&D amortization policy is not reversed, the United States stands to lose 410,000 jobs, $57.5 billion in labor income, and $71 billion in R&D spending over the next year, and it is going to make America less competitive on the world stage.
Mr. Speaker, I thank the Members who shared their experiences and what we have heard from districts all across the country on this very important issue. As we have discussed here tonight, R&D expensing legislation is critical for our job creators, innovators, and everyday Americans. The health of our economy depends on us passing this bipartisan, commonsense legislation.
The legislation has broad support from Members in 43 States and both parties. As I said in my opening remarks and in the op-ed last month, the time to address R&D amortization may have been at the end of 2021, but with the start of the new tax-filing season a few weeks away, the next best time is now.
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