Alex Muresianu, a policy analyst at the Tax Foundation, said the recent debt ceiling deal did not address significant fixes to the tax code, leaving outstanding issues such as research and development amortization unresolved.
According to a June 1 statement, research and development amortization dampens investment across the economy and disproportionately affects tech, manufacturing and small businesses. To reduce the revenue impact of the Tax Cuts and Jobs Act, policymakers introduced research and development amortization, which requires companies to spread their deductions for research and development expenses over several years.
"The current tax treatment of R&D expenses is irrational, complicated and counterproductive. Policymakers ought to let companies fully write off R&D expenses immediately," Muresianu said in the statement.
This approach prevents companies from deducting the full cost of their investment due to inflation and opportunity cost, resulting in a higher cost of capital and required rate of return, the statement reported. The impact of research and development amortization extends beyond the economy as a whole, affecting sectors heavily reliant on research and development investment, including information technology and manufacturing.
In 2019, these sectors accounted for 83% of private domestic research and development investment, according to the statement. The concentration of research and development in specific sub-industries, such as chemical manufacturing and computer/electronics manufacturing, further emphasizes the consequences of amortization.
Furthermore, research and development amortization creates liquidity problems for small businesses, as it forces them to spread out deductions over several years, taxing income that does not exist, the statement said. The complexity of the research and development tax credit also poses challenges for small businesses in accessing the necessary relief.
The current tax treatment of research and development expenses is deemed irrational, complicated and counterproductive, with calls for companies to be allowed to fully write off their research and development expenses immediately, according to the statement.
In response to these concerns, Sens. Maggie Hassan, D-N.H., and Todd Young, R-Ind., reintroduced a bipartisan bill aimed at restoring the immediate expensing of research and development expenses. This bill seeks to rectify the tax treatment of research and development expenses and simplify the process, allowing companies to invest in innovation without unnecessary obstacles, according to a recent news release.
