U.S. Manufacturers Need R&D Tax Deductibility Legislation Now

Date: January 19. 2024

U.S. Manufacturers Need R&D Tax Deductibility Legislation Now
Randy Wolken, President & CEO

This week, House Ways and Means Committee Chairman Jason Smith (MO-08) and Senate Finance Committee Chairman Ron Wyden (D-OR) announced a bipartisan, bicameral tax framework that would alleviate a significant deficiency in our tax code that diminished R&D investment and American competitiveness. The Tax Relief for American Families and Workers Act of 2024 expands innovation with pro-growth economic policies to include the following fundamental changes to our tax code.

    • Research & Development (R&D) expensing so businesses of all sizes can immediately deduct the cost of their U.S.-based R&D investments, instead of over five years – encouraging American innovation and improving our competitive position versus China and the rest of the world.
    • Interest deductibility: continued flexibility for businesses forced to borrow at higher interest rates to meet their payroll obligations and expand their operations.
    • 100 percent expensing: restore full and immediate expensing for investments in machines, equipment, and vehicles.
    • Taiwan double tax relief: strengthen America’s competitive position with China by removing the current double taxation for businesses and workers with a footprint in both the United States and Taiwan.

Last year, a tax change required companies to amortize or deduct their R&D investments over a period of years, making R&D more costly. According to a recent NAM analysis, the sector would lose nearly 60,000 jobs and face an output decline of more than $31 billion this year alone if the change is not reversed. The U.S. has become a global outlier, joining Belgium as the only other developed country requiring the amortization of R&D expenses. Meanwhile, China provides a 200% “super deduction”—20 times the amount allowed in the U.S. tax code—for its manufacturers’ research.

Without this critical correction, innovation is much more expensive—which should worry us all. Until recently, businesses could deduct 100% of their R&D expenses in the same year they incurred those costs. However, a tax law that took effect at the beginning of 2022 requires businesses to spread their deductions out over five years instead, driving up the cost of the innovations that keep our economy strong. For instance, at International Paper, an American supplier of renewable fiber-based recyclable packaging and pulp products, that change is causing severe challenges.

R&D investments are a growth engine for the U.S. economy. We cannot have a tax policy that discourages investment in R&D. The new law reduces innovation, slows needed investment in innovation, and hurts American businesses, employees, and consumers. MACNY applauds the introduction of the American Innovation and Jobs Act, which will help the U.S. out-compete China and return the U.S. to the status of every other developed country. We need this legislation passed and signed into law now more than ever. MACNY is supporting all efforts to see this legislation implemented swiftly. Please join us in encouraging our congressional leaders to support this vital legislation. To learn more, you can contact Matt Geitner at [email protected].

Across the country, manufacturers are hiring workers, reinvesting in communities, and creating the products that move us forward. Congress must act upon the Tax Relief for American Families and Workers Act, supporting critical R&D that allows manufacturers to improve lives in America, compete globally, and provide people worldwide with innovative products.