Lawmakers from both political parties during a House Small Business Subcommittee hearing on June 6th urged Congress to allow R&D outlays to be expensed, instead of the current law that requires domestic costs to be amortized over five years.
“Unless Congress acts soon, private sector innovation…will be hamstrung and unable to invest in R&D,” said Rep. Dan Meuser (R-Penn.), the Chairman of the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access, adding that there is “bipartisan support to reinstate R&D expensing.”
Rep. Greg Landsman (D-Ohio), the Subcommittee’s Ranking Member, agreed with the chairman’s remarks.
“There is bipartisan support [for R&D expensing], but getting it done is another issue requiring real leadership,” Landsman said.
State of Play:
Enactment of R&D expensing (along with 100% Bonus Depreciation and a broader interest deduction) has been tied to expanding the Child Tax Credit. This link still exists, according to Meuser.
“Even though there is bipartisan support… Congress holds it hostage by unrelated measures being included in any legislative remedy,” he said.
Former House Speaker Nancy Pelosi (D-Calif.) is a big advocate for tying the fate of the Child Tax Credit to that of business tax breaks. She is still in office but has stepped down from the Speakership. With Pelosi out of leadership, some lawmakers wonder if there could be wiggle room to enact the business tax breaks without the Child Tax Credit or with a smaller version of it.
House Ways and Means Chairman Jason Smith (R-Mo.) is expected to release legislation that would allow for R&D expensing, expand the 163(j)-interest deduction, and return Bonus Depreciation to 100%. It is also expected to extend the Child Tax Credit that was included in the 2017 tax reform bill.
More information on this possible development is here.
Political partisanship taints nearly everything on Capitol Hill, but not when it comes to R&D expensing.
Representatives Ron Estes (R-Kan.) and John Larson (D-Conn.), both members of the tax-writing House Ways and Means Committee, introduced legislation that, if enacted, would permit R&D costs to be expensed.
The “American Innovation and R&D Competitiveness Act of 2023” (H.R. 2673) was introduced on April 18, 2023. Since its introduction, nearly every member from both parties on the House Ways and Means Committee support it. There is also bipartisan support from non-committee members. Nearly 100 House lawmakers support this bill. That support is “evenly split between Republicans and Democrats,” according to Estes.
The bill’s text is here.
Landsman, during today's hearing, stressed that R&D expensing would help make the tax code less confusing.
“Right now, our tax code is sending mixed signals to our country’s innovators,” he said. “On the one hand, we invested over $300 billion for advancing clean energy in the Inflation Reduction Act. On the other hand, we are stifling this development by weakening this tax [expensing].“
He also commented on the shortness of today’s hearing, which lasted for roughly one hour. The duration of congressional hearings is normally much longer.
Landsman attributed the hearing’s shortness to the fact that lawmakers on both sides of the aisle agree with allowing R&D outlays to be expensed. There simply wasn’t anything to debate in the hearing.
“It’s a no brainer,” Landsman said, regarding lawmaker support for R&D expensing.