August 31, 2021
Rep. John Larson (D-Conn.) has urged his chamber’s chief tax-writer to include in the upcoming tax bill an extension of research and development expensing that is set to expire next year.
“I am formally requesting that you include in the Budget Reconciliation Chairman’s Mark a four-year delay—from January 1, 2022, to January 1, 2026—of the impending requirement that companies amortize the deduction for research or experimental expenditures,” Larson wrote in a letter to House Ways and Means Chairman Richard Neal (D-Mass.).
Without Larson’s change, research and development expenses will be amortized over five years beginning in 2022, instead of being immediately deducted each year, which is currently allowed.
Neal’s committee has jurisdiction over tax policy and the letter is noteworthy because Larson is a senior member on that committee. He has also introduced legislation that permanently extends R&D expensing. The bill is supported by several other Democrats who also sit on the Ways and Means Committee. A provision supported by several lawmakers in the majority party would seem to stand a good chance of being added to the legislation.
In the letter, Larson calls for a four-year extension of R&D expensing, instead of a permanent extension, because of budget reconciliation rules. Under these rules, a provision that costs the federal government money can only exist during the current budget window, which is ten years. Larson argues that the cost to extend R&D expensing would be minor.
“A four-year deferral of the requirement would incur a relatively minor revenue cost within the 10-year budget period as most of the expenses would have been amortized within the period under present law,” he wrote.
The Congressman also noted that extending R&D expensing would be a job boost:
An Ernst and Young economic study of a four-year delay found that it would result in an additional $50 billion in R&D investment and support, on average, 167,000 jobs annually. In addition, the temporary nature of the four-year delay would amplify the effect of the policy because it creates a significant incentive for future research investment to be shifted forward from outside the four-year period to inside the four-year period. In Massachusetts alone, the study found that a four-year delay would yield an additional $2.9 billion of R&D investment and an increase of 47,000 R&D related jobs.
Larson’s letter also warns that the reconciliation bill might be the last chance to amend the R&D provision before amortization rules are current law:
At this point in time, the reconciliation bill appears to be the best (and perhaps, only) vehicle available to carry this change into law before the end of the year. Unlike the R&D credit, which was routinely extended retroactively, it is almost impossible to undo the damage of this change once it happens. Amortization is reflected on financial statements and earnings forecasts, it becomes part of the R&D budgeting process and, as a result, new R&D spending drops relatively immediately.
The House Ways and Means Committee is expected to hold public meetings on the budget reconciliation bill beginning on September 9. Additional meetings are expected to occur on September 10, 13, and 14. During these meetings, the lawmakers will debate and amend the legislation.
If Chairman Neal does not include Larson’s request in the bill, Larson can try to add his R&D provision to the bill through the committee's amendment process. Adding a provision to the bill requires a majority of Committee members to support it.
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