R&D Expensing: Assembly Member Jodi Giglio Op-Ed

Nearly 70 years of incentivized private sector research has strengthened our economy and national security, made us world leaders on innovation, and allowed us to out-compete other countries. And in just another decade, without common-sense policy change to ensure R&D is no longer punished, all of that could go away.

The U.S is at a crossroads with R&D and Congress needs to move with expediency to correct things. We can either shift to the widely supported and straightforward path and maintain what was our status quo, or we can stay on the current trajectory and face the devastating consequences that come from a flawed policy that will force businesses to invest less in R&D.

After nearly seven decades of incentivizing R&D through full expensing, i.e., allowing businesses to deduct 100 percent of R&D costs in the year in which they were incurred, companies are now being forced to amortize and slowly deduct R&D costs over five or more years.

This will drive a stake into R&D efforts. Over the next decade alone, private sector R&D spending will drop by $70 billion, killing more than 400,000 jobs, including in New York, and reducing our country’s gross domestic product by $45 billion at the same time.

Not only will the U.S. economy writ large take a hit, but the New York state economy will also suffer. Private sector R&D is responsible for more than a percent of the New York GDP, and the $18 billion in annual spending that businesses do helps to contribute to jobs and economic growth.

At a time when our economy is continuing to struggle to recover from the COVID-19 virus, it is more important now than ever to strengthen our businesses, the economy, and to create new high-paying jobs. Our state has a unique opportunity to be a bellwether state for the manufacturing of new technologies, like computer chips and other emerging technologies. Technologies that were once imported that can now be made on our shores. On Long Island alone, we have 250 technologies manufacturing companies that call us home.

Across our state, businesses and warehouses lay vacant from high state taxes, furthering the need to restore full expensing. Nowhere is this truer than with our country’s small- and medium-sized businesses. These businesses that are engaged in R&D are already reeling from the impact of their first tax season without full expensing. From coast to coast, there are examples of these businesses facing sixand seven figure tax bills for the first time, and dealing with the negative fallout of reducing investments or potentially closing their doors.

At the same time, countries like China remain on our heels, investing heavily in R&D and associated industries that not only threaten our standing in the global economy, but threaten our safety. Having grown their global R&D share by 500 percent since 2000, it’s clear that China is prioritizing innovation. While their super deduction of 200 percent for certain R&D expenses advances their work, our required amortization only moves us backwards – making the Chinese tax incentive grow to nearly six times more favorable than ours.

Though legislation has not gotten across the finish line, it’s clear that there’s energy and the recognition of how serious a problem requiring businesses to amortize R&D expenses is already causing and will continue to cause both domestically and internationally. From the dozens of co-sponsors in the House and Senate on bipartisan legislation to restore full expensing, to the support of the small business community and manufacturers, it is hard to overstate the support for full expensing.We must be able to innovate more rapidly and effectively, for both the domestic benefits and global security and standing.

While we should be rising to meet the challenges of the world, we’ve taken a step back. We have near universal support for a policy that moves our country in the right direction, all we need now is for Congressional leaders to restore full expensing to move us forward.

Assemblywoman Jodi Giglio represents the NYS Assembly District 2 which includes the North Fork of Long Island, portions of the town of Brookhaven, and the towns of Riverhead and Southold.