March 20, 2023

U.S. Senate Bill Would Resurrect Research Tax Credit

On March 16, a bipartisan pair of U.S. senators introduced legislation that would both allow businesses to once again fully deduct research and development (R&D) expenses in the year they are made. The bill also would expand the refundable R&D tax credit.

As Connecting the Dots explained late last year, a provision that went into effect at the beginning of 2022 means businesses can only amortize or deduct R&D expenses over a period of years instead of allowing them to deduct 100 percent of their expenses in the same year. For nearly 70 years, the U.S. tax code recognized the importance of R&D by allowing businesses to fully deduct these expenses in the same year.

If not reversed, this policy will devastate industrial metals companies. In fact, the change effectively tightens the limit just as interest rates are rising, a problem that would create a tax increase for many U.S. firms. Specifically, a National Association of Manufacturers (NAM) analysis found the broad manufacturing sector would lose nearly 60,000 jobs and face an output decline of more than $31 billion if the change is not reversed.

The American Innovation and Jobs Act, introduced last week by Sens. Maggie Hassan (D-N.H.) and Todd Young (R-Ind.), would restore the immediate deductibility of R&D expenses and would expand eligibility for the refundable R&D tax credit so more startups and new businesses can use it. Read more about the bill here.

The Metals Service Center Institute (MSCI) is working to restore the R&D tax credit. In October, MSCI was part of a group of more than 400 organizations that sent a letter to U.S. House and Senate leaders asking them to act quickly to restore the 100 percent deduction. That letter noted the policy change means the United States is now one of only two developed countries requiring the amortization of R&D expenses. China, meanwhile, provides a super deduction for R&D expenses up to an extra 100 percent of eligible R&D expenses in addition to actual R&D expenses.

To make your voice heard on this issue, please use NAM’s Action Center, which allows interested individuals to send a letter to their representatives in Congress asking them to vote to reverse this harmful tax change. The NAM Action Center also provides background information, R&D policy updates, and industry stories.

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