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May 15, 2023 Other Voices

Tax code must be changed to drive innovation in New England

James T. Brett

Here in New England, we are proud of our region’s reputation as a global innovation hub.

Our region is home to some of the world’s most innovative companies, in industries ranging from defense, to life sciences, to clean energy, to technology.

Each and every day, these businesses are making investments in groundbreaking research and development aimed at saving lives, combating climate change, safeguarding our national security, and more.

For many years, the U.S. tax code has encouraged such investments by allowing businesses to fully deduct qualified research and development (R&D) expenses each year.

However, under a provision of the Tax Cuts and Jobs Act of 2017 that was signed into law by former President Donald Trump, businesses must amortize or deduct these expenses over a period of five years.

This provision went into effect for the 2022 tax year. This will ultimately make R&D more costly to conduct in New England and across the U.S.

The New England Council believes firmly that the new R&D amortization requirement will halt and harm our region’s continued growth and leadership on the global stage.

As a result of this change, the U.S. is now only one of two developed countries requiring the amortization of R&D expenses. Comparatively, our nation’s competitors, such as China, currently provide a “super deduction” for R&D expenses, which drastically increases the allowed amount deducted for companies that previously did not qualify.

This change could result in companies relocating R&D facilities and funding out of the country because it will be more costly to do research in the U.S. This will not only damage our competitiveness, but it could also have significant national security ramifications, as well as job losses.

In fact, a recent study conducted by EY for the R&D Coalition found: “[F]ailing to reverse this change will cost well-paying jobs and reduce future innovation-directed R&D. Requiring the amortization of research expenses will reduce R&D spending and lead to a loss of more than 20,000 R&D jobs in the first five years with the number of lost jobs rising to nearly 60,000 over the following five years.

Moreover, when accounting for the spillover effect from R&D spending, nearly three times as many jobs will be affected. This same study also found that for every $1 billion in R&D spending, 17,000 jobs are supported in the U.S.”

Fortunately, two members of Congress from the New England region are leading the bipartisan charge to reverse this harmful change in the tax code.

In the U.S. Senate, Sen. Maggie Hassan (D-NH) has partnered with Sen. Todd Young (R-IN) to introduce the American Innovation and Jobs Act.

In addition to allowing companies to fully deduct R&D expenses each year, Hassan’s bill would also raise the cap over time for the refundable R&D tax credit for small businesses and startups, and expand eligibility for the refundable R&D tax credit so that more startups and new businesses can use it.

In the U.S. House of Representatives, Congressman John Larson (D-CT) has teamed with Rep. Ron Estes (R-KS) to introduce similar legislation, known as the American Innovation and R&D Competitiveness Act. Similar to the Senate bill, Larson’s proposal would allow companies to continue to fully deduct R&D expenses each year.

The New England Council is proud to support both of these bills, and we urge others in the business community to also encourage Congress to pass this legislation.

We have written to members of the New England Congressional delegation, calling on them to support these bills, and are hopeful that Congress will take action to pass them in the near future.

James T. Brett is the president and CEO of The New England Council, a regional alliance of businesses, nonprofit organizations, and health and educational institutions dedicated to supporting economic growth and quality of life in New England.

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