Manufacturing Chief: Revive R&D Expensing so U.S. can Compete with China

February 21, 2023

Jay Timmons, President and CEO of the National Association of Manufacturers, urged President Joe Biden and Congress to enable U.S. manufacturers to compete with China by reactivating R&D expensing.

“China is giving manufacturing companies that are located there a 200% deduction for research and development – that’s 20 times as much as what we give here in America,” Timmons said during his State of Manufacturing Address on February 21st. “So here’s the challenge to the Biden Administration and Democrats and Republicans in Congress: Let’s make it easier for America to out innovate China.”

Timmons has repeatedly urged Washington to allow for R&D expensing by undoing the requirement beginning in 2022 that such costs be capitalized and amortized over a minimum of five years. So far, those calls have fallen in deaf ears.

During today’s speech, Timmons said the current tax structure is hurting innovation in the U.S.

“It’s millions in additional tax,” he said. “That means less machinery, less research… Companies used to get bigger deductions for things like research and development, or for buying new machines that make jobs safer and the air cleaner.”

The push to make R&D expensing current law has been full throttle since early last year when the capitalization rules took effect. Those efforts have so far been unsuccessful largely because most congressional Democrats have vowed to oppose an R&D fix unless rules governing the Child Tax Credit are expanded to what they were in 2021.

2021 Child Tax Credit rules, according to the IRS:

For tax year 2021, the Child Tax Credit is increased from $2,000 per qualifying child to:

  • $3,600 for each qualifying child who has not reached age 6 by the end of 2021, or
  • $3,000 for each qualifying child age 6 through 17 at the end of 2021.

In 2022, the credit returned to $2,000.

Congressional Democrats and Republicans support R&D expensing, but they disagree on how to handle the Child Tax Credit. This argument stopped an R&D fix from happening last year and has pretty much stymied negotiations so far this year.    

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