Tax Update Blog

Senate sends strong message on R&D Expensing

May 5, 2022 | Blog
By Jay Heflin

The Senate on May 4th overwhelming approved a measure that would allow taxpayers to expense R&D outlays in the year incurred instead of amortizing them. There’s just one glitch: the measure is nonbinding.

On a bipartisan basis, Senators voted 90 to 5 to allow R&D expensing. The measure essentially asks (not requires) the 107 House and Senate lawmakers to include the tax provision in legislation they are negotiating, which is an innovation/trade bill aimed at making the U.S. more competitive with China. It is not clear if these lawmakers will heed the Senate’s request since they are not required to do so.

Discussions on the underlying legislation are expected to continue through July. This means that for much of the summer lawmakers will try to create a cohesive bill by hashing-out the differences between two bills: The House-passed America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength Act of 2022 (Competes Act) and the Senate-passed United States Innovation and Competition Act of 2021 (USICA).

Tucked inside the House-passed bill is a provision that makes permanent the health coverage tax credit and increases the amount of the qualified health insurance premiums covered by the credit from 72.5% to 80%. This provision means that other tax measures can be added to the bill that the lawmakers are negotiating.

House lawmakers have also signaled support for adding the R&D expensing provision to the innovation/trade bill. On a bipartisan basis, nearly 70 House lawmakers sent a letter to their party leaders asking for “immediate action” and the measure. Like the Senate vote last night, however, the call by House lawmakers to add the provision to the bill is a request, and not an order.

In short, both of these nonbinding requests can be ignored by lawmakers crafting the innovation/trade bill.

Will R&D Fix be Added to the Bill?

Despite overwhelming, bipartisan support to include an R&D fix in the innovation/trade bill, it is not clear if it will happen.

Several lawmakers would rather extend the enhanced Child Tax Credit that expired this year instead of fixing business-related tax breaks. Many of them are threatening to oppose the innovation/trade bill if it includes business tax breaks, like an R&D fix, but does not resuscitate the enhanced Child Tax Credit. Meanwhile, other lawmakers, who support fixing the R&D problem, oppose extending the enhanced Child Tax Credit. These conflicting positions could make it harder to muster enough support to pass the underlying innovation/trade bill.

Also, President Joe Biden is eager to sign the innovation/trade bill into law. If tax measures become too problematic, they will likely be struck from the bill. If this happens, lawmakers will likely be eyeing to include an R&D fix in a year-end tax bill (assuming Build Back Better does not advance before the end of the year).


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