U.S. Tax Code Changes Have Reduced Research And Development Spending
As the National Association of Manufacturers (NAM) has pointed out, the U.S. Bureau of Economic Analysis has determined that, in the third quarter of 2023, private-sector research and development (R&D) spending fell by 1.2 percent.
This decline is likely due to changes in the country’s tax code.
Up until January 2022 a business in the United States could deduct 100 percent of their R&D expenses in the year during which those expenses occurred. Currently, however, the U.S. Department of the Treasury requires businesses to spread those deductions over a period of years.
This so-called amortization requirement makes investment in innovation more expensive to conduct. Indeed, since the harmful requirement took effect in 2022, R&D spending’s rate of growth has slowed dramatically, from 6.6 percent on average over the previous five years to less than one percent over the past 12 months.
As a reminder, MSCI joined NAM and more than 1,300 businesses and associations in calling for the measure’s reinstatement. NAM also has launched the Restoring Pro-Growth Tax Policies Action Center, which provides background information on these priorities, as well as a digital engagement tools that all concerned citizens can use to ask their senators and representatives to restore pro-growth tax policies.