Businesses look at their R&D spending as a tax bill sits in the Senate
Source: US Chamber of Commerce
R&D Expensing Uncertainty Puts Jobs and Innovation at Risk
A bill that would restore a trio of key business tax provisions, including the deduction for domestic research and development (R&D) expenses, remains stuck in the Senate.
Why it matters: Delaying action could reduce R&D spending and penalize investment in R&D-intensive industries. The innovations that come from that investment are also at risk.
Details: The Wall Street Journal reports that because of the uncertainty, some companies are reconsidering how much they invest in R&D.
• One manufacturer told the Journal that because of the expired provision, their tax bill is $25 million higher: “So that’s $25 million less that I have to invest back into my business, whether it’s R&D, whether it’s plants and equipment, hiring new people.”
Small business impact: Small businesses spend a much higher percentage of their sales on R&D than larger ones.
• Many have suffered cash flow and liquidity issues because of the expired provision.
• Some small and midsize research-intensive companies have been forced to take out high-interest loans, raise prices, and stop hiring just to survive and pay their taxes.
• John Adams, CFO of Kaddas Enterprises, told the Chamber that if Congress fails to retroactively restore R&D expensing, his company will face an increased tax burden of up to 35% for 2023.
Our take: “Many employers, especially small businesses, have struggled with the unexpected tax bill created by the lapse in these provisions,” Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, told The Washington Post. “Asking employers to wait until the next Congress is effectively asking them to make a loan to the federal government in the hopes that they might get paid back in 2025 or 2026.”
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