Research and development are the lifeblood of the United States’ innovation economy. The breakthroughs borne out of American ingenuity fuel the U.S. economy and drive new global products and industries. The tech sector alone spends over $200 billion annually on domestic research and development, and for every $1 billion of that investment, 17,000 jobs are supported in the United States. However, that investment and those jobs – and the economic competitiveness they support – are at risk if the U.S. Congress does not act to level the global playing field.
Currently, the United States ranks 27th out of 38 global countries with respect to research and development incentives. Since the beginning of 2022, the U.S. has become an even less attractive place to push forward new innovations due to a requirement that restricts companies from expensing research and development investments in the year they occur.
For nearly seven decades, United States’ tax policy has encouraged investments in domestic cutting-edge research and development by allowing companies to write off their research and development costs in the year they occur. This generates ongoing innovation and competition with other countries, and encourages companies to locate their research and development investments, facilities, and jobs in communities across the U.S.
Now expenses towards essential research and development must be written off over five and 15 years for work done in the U.S. and overseas, respectfully. This drastic change lowers the value of such expenses and diminishes the resources available to make additional investments in research and development. Unless Congress acts, companies will be forced to make tough choices about where to invest, and the United States could lose out to other countries that put a higher value on American ingenuity.
Restoring the ability for companies to expense research and development costs would create resources for salaries of U.S. workers, since nearly 70 percent of research and development spending goes directly into Americans’ paychecks and pocketbooks. If Congress does not act, the U.S. will lose approximately 23,400 jobs over the next five years. Congress must act to fix this policy and demonstrate its support for innovation and U.S. jobs.