In the realm of Washington, industry coalitions representing both automakers and suppliers are urging Congress to reinstate a federal tax break, allowing for the comprehensive and immediate expensing of domestic Research and Development (R&D) investments. In a missive dispatched to House and Senate leadership on Wednesday, five trade associations — namely, the Alliance for Automotive Innovation, American Automotive Policy Council, Autos Drive America, MEMA, and the Truck and Engine Manufacturers Association — underscore the urgent necessity for Congress to promptly reinstate full R&D expensing, a provision that lapsed in 2021.
As articulated in the letter acquired by Automotive News, these groups assert that the swift restoration of this fiscal tool is imperative for fortifying U.S. job creation, fostering innovation, and safeguarding national security. They emphasize that such reinstatement will also guarantee that major advancements in their sector, such as those propelling electric vehicles, zero-emission technologies, automated vehicles, and the future of connected vehicles, can originate from within the United States.
Since 2022, companies have been compelled to spread the deduction of U.S.-based R&D costs over a five-year period, complying with a stipulation in the 2017 Tax Cuts and Jobs Act enacted during the Trump administration. The industry groups contend that this five-year requirement has substantially inflated the expenses associated with conducting R&D in the U.S. They implore Congress to enact legislation for a remedy, specifically requesting "a two-year retroactive (at the discretion of the taxpayer) and a two-year prospective restoration of first-year deductibility of R&D."
In the absence of such corrective measures, they voice apprehension that the U.S. runs the risk of falling even further behind global competitors in supporting crucial private sector R&D. This concern is amplified by the generous incentives offered by China and the European Union. The groups underscore that the restoration of this deduction is not merely important for U.S. competitiveness but is also integral to national security.
This appeal from the industry follows the unveiling of a bipartisan tax framework by Senate Finance Committee Chair Ron Wyden, D-Ore., and House Ways and Means Committee Chairman Jason Smith, R-Mo., on Tuesday. The proposed package incorporates a provision to reinstate 100 percent expensing for investments in machinery, equipment, and vehicles. This would enable businesses to immediately deduct the costs of their U.S.-based R&D investments rather than over a prolonged five-year period. According to a summary of the proposal, this provision would be applicable to costs incurred in tax years starting after Dec. 31, 2021, and before Jan. 1, 2026.
Wyden contends that by incentivizing R&D, the plan will foster innovation and enhance the economic competitiveness of the U.S. against global counterparts, especially China. Smith expresses confidence that the legislation will bolster U.S. competitiveness with China and stimulate job creation, entrenching over $600 billion in established pro-growth, pro-America tax policies that support more than 21 million jobs.