[Congressional Record Volume 168, Number 22 (Thursday, February 3, 2022)]
[Extensions of Remarks]
[Pages E103-E104]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    CONGRESS MUST IMMEDIATELY REVERSE AMORTIZATION OF RESEARCH AND 
                     DEVELOPMENT (``R&D'') EXPENSES

                                 ______
                                 

                          HON. JOHN B. LARSON

                             of connecticut

                    in the house of representatives

                       Thursday, February 3, 2022

  Mr. LARSON of Connecticut. Madam Speaker, I rise to address an urgent 
tax policy matter.
  At the start of this year, a key bipartisan tax policy ended. It had 
been around for nearly 70 years. For nearly 7 decades American 
taxpayers had been able to immediately deduct R&D expenses.
  What has changed since the beginning of 2022, Madam Speaker? 
Taxpayers are now required to deduct R&D expenses over a period of 
years. This spread-out deduction is what is known as amortization.
  What does it mean, Madam Speaker? Expenses would be recovered more 
slowly. To those innovative businesses cash flow will be reduced. 
Reduced cash flow means less dollars for R&D. Smaller R&D budgets will 
harm

[[Page E104]]

R&D activity in the United States. That's the effect of increasing the 
tax burden borne by those innovating businesses.
  Will there be a loss of jobs, Madam Speaker? The answer is yes. One 
study concludes the job losses would total over 20,000 jobs in the 
first five years. As bad as that is, the same study concludes job 
losses would be three times as much in the second five years. We're 
talking about 60,000 jobs lost.
  How will this change affect U.S. global competitiveness, Madam 
Speaker? The answer is it will hurt U.S. competitiveness abroad. If 
allowed to remain in effect, the U.S. policy of amortization would 
treat innovation-related expenses worse than any other developed 
country. Prior to amortization going into effect, the U.S. was already 
ranked 27th of 37 OECD countries with respect to R&D incentives. If 
amortization remains, things get worse. In effect, the U.S. will fall 
further behind our competitors when it comes to incentivizing R&D.
  If Congress fails to delay amortization before March 31st, the first 
quarter of 2022, businesses will be forced to act. Estimated cash tax 
payments will increase by more than $8 billion in just the first 
quarter alone. The effect will be an immediate reduction in capital 
that can support R&D. Of prime concern to Congress should be the loss 
of more than 20,000 direct R&D jobs this year without our action.
  A four-year delay of amortization is included in the House-passed 
Build Back Better legislation and the initial Senate substitute. I 
would have hoped we would already have addressed this issue, but while 
progress on that legislation awaits final disposition in the Senate, 
Congress must begin to consider whatever is the fastest path to 
enactment because time is of the essence.
  One option would be the two pieces of legislation designed to address 
China competition. The House is considering the America Creating 
Opportunities for Manufacturing Pre-Eminence in Technology and Economic 
Stability (``America COMPETES'') Act of 2022. Our Senate colleagues 
have passed their own version of China competition legislation. Speaker 
Pelosi has said she plans to reach a bipartisan agreement to bring 
these two bills together.
  Madam Speaker, what does restoring deductibility of R&D have to do 
with the China competition bills? The short answer is plenty. In terms 
of competitiveness, China and America are moving in different 
directions on tax incentives for R&D. The Chinese have enacted a super 
deduction for R&D expenses. For manufacturing companies in China, that 
deduction yields an extra 100 percent of eligible R&D expenses. This 
deduction is in addition to actual R&D expenses incurred. That's why 
they call it a super deduction.
  Let's discuss an example. A manufacturing company that undertakes 
$100 of R&D in China would deduct $200. By contrast, a company that 
undertakes $100 of R&D in the United States would deduct only $10 in 
2022. R&D conducted in China would thus receive 20 times the tax 
benefit of R&D conducted in the U.S. When all R&D incentives are 
considered, China would have incentives more than 11 times as generous 
as those of the United States. Eleven times as generous, Madam Speaker. 
How are American companies going to win the race with Chinese companies 
who have that kind of head start?
  We should look at including the four-year delay of amortization of 
R&D in the final America COMPETES legislation. Inclusion becomes more 
important if it appears lo be moving more quickly than the Build Back 
Better legislation.
  Madam Speaker, there is another legislative vehicle Congress should 
consider for this urgent matter. Congress is in the process of 
addressing defense and non-defense appropriations spending because the 
continuing resolution expires on February 18, 2022. Congressional 
negotiators should be aware that a reversal of the decades-old R&D tax 
incentives brings adverse national security consequences.
  Where's the linkage to national security? Look no further than the 
National Science and Technology Council. They concluded that ``ensuring 
national security and resilience is critical for the United States, 
especially as other nations dramatically increase their R&D 
expenditures'' and 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.'' Ignoring R&D 
amortization would have implications for our national security 
interests and should be resolved by the time these issues are settled.
  Madam Speaker, strong tax incentives for R&D have long had bipartisan 
support. The initial R&D credit was passed by a Democratic House. 
Republican Senate, and signed by President Reagan. Last year a 
bipartisan group of 96 House members and 26 Senators introduced 
legislation permanently reversing amortization of R&D expenditures. 
With amortization of R&D now in effect, the bipartisan goal of 
restoring this bipartisan tax incentive becomes even more compelling.
  Congress must act immediately, certainly before the end of this 
quarter, to maintain the immediate deductibility of R&D expenditures. 
As each month passes, failure to act yields proportionately more harm 
to US innovation and competitiveness. All available legislative 
vehicles should be considered.
  Madam Speaker, America's innovators cannot wait further.

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