Rep. Jason T. Smith, U.S. Representative for Missouri's 8th District | Congressman Jason Smith Official U.S. House headshot
Rep. Jason T. Smith, U.S. Representative for Missouri's 8th District | Congressman Jason Smith Official U.S. House headshot
The United States is facing challenges in research and development (R&D) due to the expiration of the Trump tax cuts, which previously allowed for immediate R&D expensing. This change has resulted in a reduction of domestic R&D investment in 2023. Without immediate expensing, American businesses can only expense 20 percent of their R&D expenses annually. In contrast, China offers a 200 percent R&D "super deduction," giving its companies a significant advantage.
Immediate R&D expensing is considered crucial for economic growth, potentially generating $70 billion in new investment and supporting 21 million jobs. House Ways and Means Committee Chairman Jason Smith emphasized the importance of renewing these tax cuts to maintain competitiveness with China and support American workers.
"America is locked in a global competition with Communist China. If Congress fails to renew the Trump tax cuts, we will needlessly risk surrendering any competitive advantage we have," said Smith. He stressed that extending these provisions would benefit millions of families and help America compete globally.
The U.S. Innovation Tax Team, led by Rep. Ron Estes, has been conducting events outside Washington to gather input from innovators on restoring immediate R&D expensing. These sessions have highlighted the negative impact of losing this provision on technology research, job security, and future investments.
Lisa Winton, a Georgia manufacturer, noted that prior to 2022, full deductions for R&D expenses were possible but are now limited each year. She contrasted this with China's policy allowing a "super deduction" equal to 200 percent of research costs.
Tom Tredway from Erie Molded shared his experience with unexpected tax bills due to changes in expensing rules. He explained how this affects decision-making and reinvestment plans within his company.
Frank Watanbe, president of a biotechnology startup, discussed the difficulties faced by small companies unable to fully deduct their R&D expenses despite not making profits yet. He expressed hope for legislative changes that would restore full deductibility.
These hearings underline the urgent calls from various sectors for Congress to act swiftly in reinstating immediate R&D expensing as part of an economic package.
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