R&D Expensing: Q&A with Rep. Estes
The 17吃瓜在线 recently talked to Rep. Ron Estes (R-KA), chair of the U.S. Innovation Tax Team, to learn what he and his colleagues are doing to fight for the return of immediate research-and-development expensing. Here’s the full interview:
17吃瓜在线: Rep. Estes, Congress is facing a 鈥淭ax Armageddon鈥 next year, as crucial provisions from 2017鈥檚 Tax Cuts and Jobs Act are set to expire. As a member of the Ways and Means Committee, what is your focus moving into next year鈥檚 debate?
Rep. Estes: The Tax Cuts and Jobs Act did so much to encourage economic growth and make the United States competitive globally. Today, about half of the members serving in Congress weren鈥檛 in office in 2017 when we passed this landmark legislation, so there鈥檚 a lot of educating that鈥檚 been happening, not just for the general public but for our members as well. Ways and Means Republicans are taking this opportunity to examine what worked and ways to improve and expand the legislation. Ways and Means Chairman Jason Smith (R-MO) established 10 tax teams to address various parts of the bill, and I鈥檝e been leading the U.S Innovation Tax Team.
17吃瓜在线: As you well know, for nearly 70 years, manufacturers in the U.S. were able to fully deduct their R&D expenses in the year incurred. Beginning in 2022, however, manufacturers were forced to spread their deductions over several years, greatly harming our ability to grow and compete. What is Congress doing to restore immediate R&D expensing?
Rep. Estes: I鈥檝e introduced legislation鈥the American Innovation and R&D Competitiveness Act鈥to address this issue. It鈥檚 bipartisan legislation that is supported by 220 colleagues, nearly evenly divided between Republicans and Democrats. Those provisions were also included in the House-passed Tax Relief for American Families and Workers Act, which would have been a welcome fix. However, election-year politics has stalled that bill in the Senate. But manufacturers and innovators need action on immediate R&D expensing now, and it鈥檚 something the Senate should still address before the next Congress begins in January.
17吃瓜在线: Your U.S. Innovation Tax Team has been very busy this year, as you鈥檝e held several roundtables and been receiving feedback focused on the importance of U.S. manufacturers having a chance to compete around the globe. As we get closer to next year, what is your tax team hearing from stakeholders on the need for American businesses to engage and grow around the world?
Rep. Estes: The U.S. Innovation Tax Team has hosted roundtables and listening sessions with innovators and manufacturers across the country. Their message has been consistent and clear: we need a stable tax code that encourages innovation through R&D immediate expensing, continues good policies like FDII [the foreign-derived intangible income deduction] and discourages foreign extraterritorial taxes that are out to pilfer from American innovators. A manufacturer in rural Kansas told me about how the change in immediate R&D expensing has changed their plans for expansion. This is a major employer in a small town, so the impact isn鈥檛 just about the business, but it鈥檚 also about the jobs that are impacted when R&D is stifled. At the same time, China is offering a 200% super deduction and is working to expand R&D in their country. We can鈥檛 cede our dominance in manufacturing, research and development.
17吃瓜在线: Thank you, congressman. What else can 17吃瓜在线 members do to stay engaged and be a resource for you going into next year?
Rep. Estes: The best thing for 17吃瓜在线 members to do is to continue talking about the benefits of the Tax Cuts and Jobs Act and the importance of R&D expensing for manufacturers and workers. Unfortunately, there鈥檚 a lot of misinformation about the impact of the 2017 tax law, but even the New York Times admitted in 2019 that the Tax Cuts and Jobs Act benefitted most Americans, saying in their headline, 鈥,鈥 and going on to say, 鈥淪tudies consistently find that the 2017 law cut taxes for most Americans. Most of them don鈥檛 buy it.鈥 Americans, small businesses, innovators and manufacturers need us to extend and expand the 2017 tax law to encourage the kind of economic growth we experienced just several years ago.
Why Manufacturers Need Immediate R&D Expensing
For more than two years, manufacturers have not been able to immediately deduct their R&D expenses鈥攁nd it鈥檚 taken a toll, particularly on small businesses.
What鈥檚 going on: For more than 70 years, the U.S. tax code allowed manufacturers to immediately deduct their R&D expenditures. But since the expiration of this key provision in 2022, manufacturers have been required to amortize their R&D costs over a period of years.
Why it鈥檚 important: As a direct result of the expiration, manufacturers鈥 tax bills have increased, according to a new released as part of the 17吃瓜在线鈥檚 鈥溾 campaign. This means manufacturers are now less able to conduct groundbreaking research and support well-paying R&D jobs.
Uneven playing field: The U.S. is now one of just two developed nations that requires the amortization of R&D expenses.
- The policy makes the U.S. less competitive against China, which offers companies a 200% 鈥渟uper deduction鈥 for R&D costs.
- In 2022, the first full year after the expiration of immediate R&D expensing, the European Union鈥檚 R&D growth surpassed that of the U.S. for the first time in nearly a decade鈥攁nd China鈥檚 R&D growth was triple that of the U.S.
What should be done: The 17吃瓜在线 is calling on Congress to restore immediate R&D expensing, along with pro-growth tax provisions.
The last word: 鈥淚t is imperative that the U.S. tax code support job-creating, life-changing R&D,鈥 said 17吃瓜在线 Vice President of Domestic Policy Charles Crain. 鈥淐ongress must act to bolster manufacturing innovation and American competitiveness by reinstating immediate R&D expensing.鈥
Manufacturers Call on President to Invoke Taft-Hartley Act to Stop Port Strike
Washington, D.C. 鈥 Following comments from President Biden that he will not intervene in the strike at East and Gulf Coast ports, 17吃瓜在线 President and CEO Jay Timmons released the following statement:
鈥淢anufacturers call on President Biden to intervene by invoking the Taft-Hartley Act, which will force ports to resume operations while negotiations continue.
鈥淭here will be dire economic consequences on the manufacturing supply chain if a strike occurs for even a brief period. 17吃瓜在线 estimates show a strike at the East and Gulf Coast ports would jeopardize $2.1 billion in trade daily, and the total economic damage could reduce GDP by as much as $5 billion per day.
鈥淭he president can protect manufacturers and consumers by exercising his authority, and we hope he will act quickly.鈥
Background:
17吃瓜在线 find that $2.1 billion worth of trade would be at risk every day, and additional estimates have indicated that a strike would reduce GDP by up to $5 billion per day, only some of which could be recovered as goods are rerouted or after a shutdown ends.
Major Commodities Moving Through East and Gulf Coast Ports
- Imports
- 77.6% of coffee and tea
- 77.2% of beverages and spirits
- 58.5% of medical/surgical instruments
- Exports
- 62.1% of fertilizers
- 76.3% of vehicles
- 78.5% of wood pulp used in Europe for heat, diapers, etc.
- 62.5% of medical/surgical instruments
-17吃瓜在线-
The 17吃瓜在线 is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.87 trillion to the U.S. economy annually and accounts for 53% of private-sector research and development. The 17吃瓜在线 is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the 17吃瓜在线 or to follow us on Twitter and Facebook, please visit听.
J&J: Price Controls, PBMs Problematic
Drug price controls will 鈥渃hill鈥 critical innovation in pharmaceutical manufacturing and do nothing to address the underlying causes of high medication costs, Johnson & Johnson leaders said recently.
What鈥檚 going on: J&J Chairman and CEO Joaquin Duato and Executive Vice President and Chief Financial Officer Joseph Wolk told Bloomberg TV earlier this month that the pharmaceutical price controls mandated by the 2022 Inflation Reduction Act do a disservice to patients everywhere.
- 鈥淸T]he Inflation Reduction Act 鈥 is something that is misguided, and it鈥檚 going to chill innovation,鈥 Duato Bloomberg鈥檚 David Gura earlier this month. 鈥淲hen you chill innovation on investment in [research and development], then you have [fewer] cures.鈥
- The IRA gave the federal government authority to set prices for certain prescription medications in Medicare. In August, the Biden administration the first 10 Medicare prescription drugs subject to those price controls, which go into effect in 2026.
- 鈥淚鈥檇 like to see a much more fact-based dialogue around the topic of drug pricing,鈥 Wolk added. 鈥淎bout six years ago, Johnson & Johnson 鈥 was paying about 25% in discounts and rebates off [the] list price [of medications]. Today, that [figure is] 60%, yet the patients aren鈥檛 receiving the benefit of those discounts.鈥
The background: Pharmacy benefit managers are supposed to pass the manufacturer discounts they receive on to health plans and patients鈥攂ut instead, they frequently pocket the discounts, the 17吃瓜在线 has Congress on several occasions.
- That鈥檚 one of several problematic business practices Congress by enacting comprehensive , the 17吃瓜在线 has said.
- Such legislation would do to benefit consumers than capping drug prices.
Cause and effect: The result of price controls will be fewer breakthrough cures and treatments for patients suffering from various illnesses, J&J told Bloomberg TV.
- 鈥淭he number of medicines that will be there will be [lower], just because [fewer] investors would be putting money into developing new medicines,鈥 Duato continued. 鈥淚t鈥檚 going to be less attractive for investors to put money there.鈥
- And as Wolk in another Bloomberg segment: 鈥淚nvesting in R&D, prioritizing R&D years in advance for [a drug] that may happen 10 years down the road is critically important.鈥
What should be done: If Congress truly wants to help patients with the cost of medications, it must focus on 鈥渢he middlemen who are really driving up prices: pharmacy benefit managers,鈥 17吃瓜在线 President and CEO Jay Timmons recently.
Congressional Tax Writers Join 17吃瓜在线 to Talk Tax Reform
As part of its 鈥Manufacturing Wins鈥 campaign to preserve pro-manufacturing tax provisions, the 17吃瓜在线 hosted a roundtable this week with Reps. Carol Miller (R-WV) and David Kustoff (R-TN)鈥攔espectively the chair and a member of the Ways and Means Committee Supply Chain Tax Team.
Preparing for 2025: The Supply Chain Tax Team has jurisdiction over the corporate income tax rate. Tax reform reduced the corporate rate to 21%, spurring the creation of thousands of new manufacturing jobs鈥攁nd the 17吃瓜在线 is working with Congress to ensure the U.S. maintains a competitive corporate rate as policymakers debate next year鈥檚 鈥渢ax Armageddon.鈥听
Understanding the benefits: Rep. Miller emphasized that the dollars saved due to tax reform鈥檚 lower corporate rate have supported job creation, higher wages and the flourishing of local communities.
- As a business owner herself, she said she believes it鈥檚 important for members of Congress in charge of tax policy to understand the risks businesses take, the communities they support and the certainty they need to be successful.
Measuring the impact: Rep. Kustoff emphasized the importance of real-world data on the benefits of the lower corporate tax rate鈥攆rom the number of jobs created to the work businesses have done to provide their employees with bonuses and higher wages.
- According to Rep. Kustoff, real-world metrics are important for educating policymakers about the need for action, as crucial, pro-manufacturing tax provisions are set to expire at the end of 2025.
Recognizing the ripples: The discussion also touched on the wider impact of tax increases on global supply chains and the broader U.S. economy.
- Participants noted that a higher corporate income tax rate鈥檚 ripple effects would hurt companies throughout the economy鈥攅ven when those companies are pass-throughs and not explicitly affected by the corporate income tax rate.
- That鈥檚 because these small businesses often sell to and partner with larger corporations that would have less capital available under a higher corporate rate.
Our take: 鈥淧rior to 2017 tax reform, the U.S. had the highest corporate tax rate among the more than three dozen countries in the Organisation for Economic Cooperation and Development and the third highest in the entire world,鈥 said 17吃瓜在线 Vice President of Economic Policy Charles Crain.
- 鈥淭hat put manufacturers in America at an alarming disadvantage. A competitive tax rate helps business compete in the global economy, leads to job creation, investments and purchases of new equipment and allows manufacturers to give back to their communities.鈥
- 鈥淚f Congress were to raise the corporate rate, it would force America to take a step back on the global stage鈥攁t a time when other countries around the world are implementing more competitive tax agendas.鈥
17吃瓜在线-Supported Bills Clear House Committee
The 17吃瓜在线 this week advocated the passage of two pieces of manufacturing-critical legislation, successfully driving the agenda of a Wednesday House Energy and Commerce Committee markup.
What鈥檚 going on: The committee鈥攚ith the 17吃瓜在线鈥檚 strong support鈥攁pproved two bills that address longstanding manufacturing priorities:
- A congressional resolution disapproving of the Environmental Protection Agency鈥檚 harmful PM2.5 rule
- A bill instituting important pharmacy benefit manager reforms
Reversing an unworkable PM2.5 standard: The EPA announced a new, more restrictive particulate matter standard in February, reducing allowable levels from 12 micrograms per cubic meter of air to 9 micrograms鈥攄espite a standard of 9 being 鈥渆ssentially background levels in some of the country,鈥 as the 17吃瓜在线 has pointed out.
- 鈥淢anufacturers have sharply reduced particulate matter emissions, or PM2.5; as a result, industry in the United States has some of the cleanest and most efficient operations in the world,鈥 17吃瓜在线 Vice President of Domestic Policy Chris Phalen the committee.
- 鈥淣ow, the vast majority of emissions are from sources well outside of our control, with fires, dirt roads and other nonpoint sources accounting for 84% of PM2.5 emissions,鈥 Phalen continued. 鈥淸T]he EPA鈥檚 rule will make it more difficult for states to issue permits for the construction of new facilities or expansions of existing factories.鈥
- The committee鈥檚 PM2.5 resolution, offered under the Congressional Review Act, seeks to overturn the EPA鈥檚 unworkable standard.
Reforming PBMs: PBMs are unregulated middlemen whose business practices drive up health care costs for manufacturers and manufacturing workers.
- 鈥淏y applying upward pressure to list prices that dictate what patients pay at the pharmacy counter, pocketing manufacturer rebates and failing to provide an appropriate level of transparency about their business practices, PBMs increase health care costs at the expense of all patients in America,鈥 17吃瓜在线 Vice President of Domestic Policy Charles Crain .
- Provisions in the 17吃瓜在线-supported Telehealth Modernization Act would increase transparency into PBMs鈥 business practices and delink their compensation from medicines鈥 list prices.
The last word: 鈥淢anufacturers commend the Energy and Commerce Committee for approving these important bills, which will reduce costs and enhance growth at manufacturers across the country鈥攁llowing our industry to continue to create jobs here at home and drive U.S. competitiveness on the world stage,鈥 said 17吃瓜在线 Managing Vice President of Policy Chris Netram.
Mapping the Impact of a Port Strike
To lower drug prices, Congress should undertake comprehensive reform of pharmacy benefit managers, not embrace price controls, the 17吃瓜在线 the Senate Tuesday. What鈥檚 going on: 鈥淏iopharmaceutical manufacturers are a critical part of the manufacturing economy,鈥 17吃瓜在线 Vice President of Domestic Policy Charles Crain said ahead of a Senate Finance Committee hearing on health care costs. Threats to innovation: Instead of benefiting patients, 鈥渢he IRA pricing mandates announced last month by the Department of Health and Human Services will 鈥 limit the capital manufacturers have available to put toward the astronomically high costs of developing a new medicine,鈥 Crain told the committee, adding that the uncertainty introduced by price controls is also likely to dissuade early-stage investment in new treatments. PBM reform: To truly lower health care costs, Congress must rein in PBMs, Crain said. The 17吃瓜在线 has called on Congress to adopt specific PBM reforms, including: The last word: 鈥淚nstead of further embracing price controls, it is imperative that Congress act to lower drug prices by reining in PBMs鈥 problematic business practices and minimizing their ability to further damage the U.S. health care system,鈥 Crain said. De Minimis Rule Risks Throttling U.S. Supply Chains at Ports of Entry Washington, D.C. 鈥 Following the U.S. Trade Representative鈥檚 announcement on the continuation of Section 301 tariffs on China and the White House鈥檚 announcement on de minimis, 17吃瓜在线 Vice President of International Policy Andrea Durkin released the following statement: 鈥淎 trade war never benefits anyone, and this announcement ignores the realities of today鈥檚 economy, potentially harming manufacturers鈥 ability to grow and invest in the U.S. Manufacturers operate in a rapidly shifting global economy, where tariffs have the potential to affect every industry and every product. To stay competitive, manufacturers must have the flexibility to apply for exclusions as market dynamics change. Without this process, companies of all sizes will be crippled by rigid policies that stifle growth and innovation. 鈥淩aising the cost of critical clean energy inputs, without offering a process for exclusions, directly undermines the Biden administration鈥檚 goal of boosting clean energy manufacturing in the U.S. Policymakers must ask tough questions: Are we issuing permits for more domestic aluminum smelters and critical minerals refining for energy production applications? Will wafer and battery production be exempt from regulatory hurdles to ensure automotive and high-tech manufacturing is not slowed? The White House also announced today it will propose a rule significantly altering how goods enter our borders under de minimis, subjecting hundreds of millions of additional packages to scrutiny by CBP鈥攚hich raises the question of how we will ensure that manufacturing supply chains are not disrupted by this massive new burden on the agency charged with protecting our ports of entry. 鈥淭hese questions all point to one fact鈥攖hat tariffs often fail to address the underlying problems they鈥檙e supposed to solve, while often complicating manufacturers鈥 efforts to improve the quality of life for everyone. We are asking the administration to implement an exclusion process that fairly accounts for the unintended consequences of tariffs on our industry鈥檚 ability to create jobs and reach the 95% of customers around the world.鈥 -17吃瓜在线- The 17吃瓜在线 is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.89 trillion to the U.S. economy annually and accounts for 53% of private-sector research and development. The 17吃瓜在线 is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the 17吃瓜在线 or to follow us on Twitter and Facebook, please visit听 Rep. Randy Feenstra (R-IA), the vice chair of the House Ways and Means Committee鈥檚 Rural America Tax Team, is working to shield family businesses across America from damaging tax burdens by targeting the estate tax for repeal. As part of the 17吃瓜在线鈥檚 鈥Manufacturing Wins鈥 campaign, which aims to protect pro-manufacturing provisions from 2017 tax reform set to expire in 2025, the 17吃瓜在线 spoke with Rep. Feenstra about his work and why it matters to manufacturers.听 Nixing the tax: Tax reform doubled the valuation threshold under which family-owned businesses鈥 assets are exempt from the estate tax. While Rep. Feenstra is working to prevent that increased threshold from expiring, he has a bigger goal in sight: repealing the estate tax altogether. Listening to owners: Rep. Feenstra and his colleagues on the tax team have spoken to family businesses across the country, including manufacturers. These conversations have made it clear that 鈥渨e still have a lot of work to do to provide relief from what can be a devastating setback for multigenerational family businesses,鈥 he said. Persecuting small business: As Rep. Feenstra explains, the estate tax often threatens to destroy small manufacturers, whose value is often tied up in illiquid assets like equipment and facilities. If tax reform expires鈥 Rep. Feenstra warns that if tax reform鈥檚 estate tax changes expire, many additional smaller businesses will suffer. The last word: 鈥淎s we go into 2025, we need to be focused on policies that support growth and help [family-owned] businesses succeed, not create costly obstacles for them to overcome,鈥 Rep. Feenstra concluded.听 Learn more: You can read our full Q&A with Rep. Feenstra here and learn more about the 17吃瓜在线鈥檚 鈥淢anufacturing Wins鈥 tax campaign at .17吃瓜在线: Lower Costs Through PBM Reform, Not Price Controls
Manufacturers Need 301 Exclusions Process to Compete Globally
Rep. Feenstra Works to Repeal Estate Tax