The Big Push to Restore R&D Tax Credits
The Republican tax overhaul signed into law by President Donald Trump in 2017 requires companies to spread their tax deductions for research and development over five years, starting in 2022. But pressure is growing to reverse that rule, restoring corporations’ ability to claim the full value of their R&D expenditures in year one.
Late Wednesday, the Senate voted overwhelmingly in support of a nonbinding resolution to restore the tax break, part of an effort to include such a provision in the still-developing, multi-billion-dollar China competition bill, some version of which lawmakers hope to pass this year.
Supporters of the tax rule change frame it as a way to enhance American competitiveness. “By strengthening the R&D tax credit for startups and preserving other tax incentives for research here in America, we can outcompete countries like China,” said bill sponsor Sen. Maggie Hassan (D-NH).
According to Roll Call, the new five-year deduction horizon is hurting the bottom line of major companies, especially those that produce or use semiconductors, including Intel, Ford and Lockheed Martin, with the latter claiming that its operating cash will be reduced by $500 million this year if the rule is not reversed.
But critics say that immediate expensing of R&D expenses amounts to a roughly $130 billion give-way over four years to large corporations, rewarding them for work they would likely have done even without the tax incentives. And as the deficit hawks at the Committee for a Responsible Budget point out, those revenues were supposed to help reduce the cost of the 2017 law and, if eliminated, would contribute to a larger deficit over time.
One of the few senators who voted against the motion to restore the tax break – 90 senators voted in favor, five against – was Bernie Sanders (I-VT), who took the occasion to highlight lawmakers’ hypocrisy on the issue of deficits and tax breaks.
“Over and over again, I hear members of the Senate express their deep concern about the deficit,” Sanders said during debate. “We can't maintain a child tax credit to cut child poverty, we can't make sure that senior citizens on Medicare have teeth in their mouths. We just can't afford it. But apparently … we can afford to provide $125 billion in tax breaks over the next four years to some of the most profitable corporations in America, including Amazon, Intel, AT&T, Boeing – you name it. This amendment would repeal ... a modest tax increase on profitable corporations that President Donald Trump pushed to partially offset the cost of his massive tax giveaway to the rich a few years ago. ... Is that what we're in the business of doing, telling working families we can't help them while giving huge tax breaks to some of the wealthiest and most profitable corporations in America?”
Sanders suggested that greater solicitousness toward the rich and powerful may help explain why lawmakers are held in such low regard. “Recent polls suggest that Congress has a 19 percent favorability rating, and I find that shocking,” he said. “Clearly, if that 19 percent had any inkling as to what goes on here in the Senate, that number would be much lower.”
