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.