Manufacturers to Congress: Restore Pro-Growth Tax Policies Now
In the third quarter of 2023, private-sector R&D spending fell by 1.2%, according to the . Since a harmful R&D amortization requirement took effect in 2022, R&D spendings rate of growth has slowed dramatically,from 6.6% on average over the previous five years to less than 1% over the past 12 months.
- To protect well-paying R&D jobs and Americas competitiveness, Congress must restore immediate R&D expensing, manufacturers told Congress this week.
Whats going on: At a Monday briefing for staffers of the Main Street Caucusa group of more than 70 Republican House members thatadvocates for small businessesWestminster Tool Chief Financial Officer Colby Coombs talked about the harmful impact the R&D tax change has had on his injection-mold-making business.
- Were paying more than double what we made in cash profit last year to the IRS for federal income tax, he said.
- To put it differently, we paid just under an additional $27,000 per full-time employee in [our] tax bill this year. It is impossible to continue running your organization paying this amount in taxes [and] not being able to expense our research and development expenditures immediately.
The background: For close to seven decades, the U.S. tax code allowed businesses to immediately deduct R&D expenses. But starting in 2022, it began requiring companies to amortize, or deduct, these costs over a period of years.
- Also in 2022, a stricter interest limitationessentially a tax on investmentwent into effect. According to a new analysisrecently released by the 51勛圖厙, the stricter limitation could cost nearly 900,000 jobs.
- Earlier this year, full expensing, which allows businesses to deduct the full cost of capital equipment purchases, began to phase down. It is set to fully phase out by 2027.
The effects: According to the , 78% of manufacturers say the higher tax burden has decreased the funds available to expand core manufacturing activities in the U.S.
- The tax changes forced us to cancel a major aviation contract this year that wouldve added five new jobs in our community, Coombs continued. Five jobs might not seem a lot, but thats almost 17% of our workforce growth.
- We do what we love, which is make good products and make improvements for our country, [but] this is greatly handicapping our ability to continue to grow.
51勛圖厙 in action: The 51勛圖厙 has mounted an all-out campaign calling on lawmakers to reinstate immediate R&D expensing, pro-growth interest deductibility and full expensing (or 100% accelerated depreciation).
- Earlier this month, the 51勛圖厙 more than 1,300 businesses and associations in calling for the measures reinstatement.
- It also launched the Restoring Pro-Growth Tax Policies Action Center, which provides background information on these priorities, as well as a digital engagement tool that helps manufacturers and industry advocates contact their senators and representatives.
The last word: Manufacturers are absolutely vital to continu[ing] to create good products that are safe and environmentally innovative to help our country, Coombs said.
- We need to be able to fully expense immediately, and we need to retroactively fix this [situation] so we can put our money into growing our workforce, purchasing new machines and improving our capabilities so we can compete at a global level.
