Rep. Estes Op-Ed: Encouraging research and development can drive America’s recovery

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Encouraging research and development can drive America’s recovery

By Rep. Ron Estes (R-KS)

June 17, 2020

CLICK HERE to read the full op-ed.

As America begins to safely reopen, I’m confident the resilience and tenacity of American workers and entrepreneurs will help our economy recover. Thankfully, Congress has already passed four pieces of major legislation to both combat COVID-19 and help workers and businesses who have been hurt. But much more needs to be done.

As a next step, Congress should focus on creating an environment that encourages new economic growth and the spread of new ideas, technologies, industries and jobs. Congress can help do that by changing the tax code so companies can continue to immediately expense and deduct from their taxes the costs of research and development (R&D). According to the Tax Foundation, immediate expensing of all investments, including R&D expensing, is the No. 1 federal reform Congress can take to encourage economic recovery after COVID-19

The tax reform package Congress passed in 2017, the Tax Cuts and Jobs Act (TCJA), was the first significant tax reform effort since 1986. The TCJA led to tremendous economic growth and helped our economy better absorb the terrible impact of COVID-19. Without the TCJA, our situation today would be much worse.

Unfortunately, the negotiations process in Congress resulted in some key provisions in the TCJA being phased out. In the case of R&D, full expensing was allowed through the end of 2021. However, starting in 2022, businesses will be required to spread out or amortize R&D expenses over a period of five years for domestic R&D or 15 years for foreign R&D. This spreading out of expenses will significantly diminish the near-term value and likelihood of research investments, making us the only developed country requiring R&D expenditure amortization.

When compared to the world’s leading market economies, the United States ranks 26th out of 36 in the value of our R&D tax incentives. At a time when it’s critical for our economy to become more competitive, spreading out R&D expenses will make us less competitive. Congress needs to act quickly to prevent this from happening.

Today’s R&D dollars create tomorrow’s jobs. We need to keep R&D dollars inside our country where they will help American businesses and workers. According to EY, not allowing immediate R&D expensing could result in billions in lost income for American workers, 67,700 lost jobs in each of the next five years, and 169,400 lost jobs in each of the subsequent five years and beyond.

I’ve introduced a bill with Rep. John Larson (D-Conn.), the American Innovation and Competitiveness Act (H.R. 4549), to allow companies to immediately expense R&D. I believe this additional step is needed because our recovery won’t be driven primarily by Washington but by Wichita and towns and cities just like ours that have their own unique businesses and industries.

In my district in Wichita, Kan., immediate expensing of R&D investments will make our aerospace companies more competitive. For example, Spirit AeroSystems will realize direct tax savings when they invest in research to improve their manufacturing processes or find ways to industrialize materials for high-rate production programs. This fix will lower the long-term price tag for research and technology, which will help workers in our area and help Spirit AeroSystems compete and win in our global economy.

A recent R&D success story is Spirit’s partnership with Vyaire Medical to build critical care ventilators at a converted facility in Wichita. Because of Spirit’s investments in research, technology and innovation, they were able to rapidly apply their manufacturing capabilities to help meet our nation’s need for critical care ventilators. In doing so, they created 700 jobs.

Industries and businesses across America ranging from health care and pharmaceuticals to energy and high-tech will benefit from immediate expensing of R&D. Investing in R&D is one of the best ways to generate more economic investment, innovation and high-wage jobs.

As America safely reopens our economy, those of us in elected office have to rethink and reform how we’ve done business. This one fix to the tax code will have an enormously positive impact when American workers and businesses need all the help they can get.

Want to read more on the fight against Coronavirus? Read our Coronavirus Bulletin here which contains our extensive FAQ about recent federal actions.

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