February 15, 2022

WASHINGTON – Global tech trade association ITI urged U.S. lawmakers to prioritize and protect research and development opportunities for U.S. innovators. In a letter sent to Congressional leadership Monday, ITI encourages the U.S. Congress to maintain the ability of companies to deduct the research and development (R&D) investments in the year they occur to keep the U.S. competitive in terms of innovation and high-wage jobs.

“If Congress does not act to continue to incentivize research and development investments, 23,400 American jobs will be put at risk in each of the next five years,” said ITI’s President and CEO Jason Oxman.

The amortization of R&D expenses was a result of the 2017 Tax Cuts and Jobs Act that requires R&D expenses to be capitalized and amortized over five years, which affects the amount companies can invest in new innovations. Delaying the implementation would give industry more time to develop a solution and allow Congress to advance the bipartisan American Innovation and Jobs Act (S. 749) and the American Innovation and R&D Competitiveness Act of 2021 (H.R. 1304), which help address the issue.

Read the full letter here or below:

February 14, 2022

Dear Leader Schumer, Leader McConnell, Speaker Pelosi, and Leader McCarthy:

The Information Technology Industry Council (ITI) is the premier global advocate for technology, representing the world’s most innovative companies. Founded in 1916, ITI is an international trade association with a team of professionals on four continents. We promote public policies and industry standards that advance competition and innovation worldwide. Our diverse membership and expert staff provide policymakers with the broadest perspective and thought leadership from technology, hardware, software, services, and related industries.

We strongly encourage you to include a delay in the requirement to amortize research and development (R&D) expenses in any moving legislation. Both the American Innovation and Jobs Act (S. 749) and the American Innovation and R&D Competitiveness Act of 2021 (H.R. 1304) would address the issue of the current deduction of the R&D and have strong bipartisan support. A four-year delay in the implementation of the requirement to amortize R&D expenses would address short-term and long-term problems with amortization. First it would dedicate cash flows to workforce pay and increases in supply chain costs. Second, it would allow the business community to work with Congress to address this amortization issue with a longer-term horizon.

Since 1954, the Unites States has allowed companies to deduct qualified research and development (R&D) expenses from their taxable income in the same year in which they are incurred. This provision (pursuant to section 174 of the Internal Revenue Code) has supported innovation and encouraged companies to locate their R&D investments, facilities, and jobs in the U.S.

The amortization of R&D expenses was an unfortunate choice made in the 2017 Tax Cuts and Jobs Act that now requires R&D expenses to be capitalized and amortized over five years. This lowers the value of the deduction of such expenses and impacts cash flow. Restoring the ability of U.S. companies to deduct their R&D expenses in the year they occurred is crucial to U.S. competitiveness, innovation, and high-wage jobs in the U.S. The U.S. is already ranked 27th out of 37 in the OECD with respect to R&D incentives. Requiring amortization to go into effect further weakens U.S. R&D incentives.

It is crucial that section 174 expensing is continued to be allowed in the current tax year. Failing to enact a delay in the requirement to amortize R&D expenses within the first quarter of this year could result in businesses increasing their first-quarter tax payments by $8 billion, resulting in significant cash flow losses. As the requirement to amortize R&D expenses impacts companies’ financial statements, it will impact their assessment of the value of future R&D spending, nearly 70% of which is for salaries and wages. The National Science and Technology Council issued a report in October 2021 which concluded that, as other nations increase their R&D investments, sustained R&D investments “are essential to ensure that the United States remains able to secure and protect the American people in the face of this increased competition.”

If Congress does not act and companies lose the ability to currently expense R&D expenses altogether (a large portion of which are wages and salaries for U.S. R&D employees) the U.S. will lose approximately 23,400 jobs in each of the first five years.

The technology industry in the United States accounts for a large percentage of R&D spending and U.S. exports: U.S. exports of technology products and services totaled $338 billion in 2019 and supported 918,500 U.S. tech industry jobs. Overall, activities supported by R&D investments represent over 2.8% of America’s GDP. Restoring current expensing is critical to preserving the rate of return on R&D investment and high-wage R&D jobs.

I urge you to act to restore this pro-innovation policy as soon as possible.

Sincerely,

Information Technology Industry Council (ITI)

Public Policy Tags: Tax Policy