R&D tax change is impeding American innovation

Nick Loris and Dr. Aaron Goodman of Petra Power wrote in The Cleveland Plain Dealer about the need to make immediate expensing a permanent fixture in the tax code.

Lawmakers are showing they can make bipartisan agreements on foreign policy. Now, they should turn to an important bipartisan domestic issue. 

Heralded as the biggest piece of climate change legislation in history, the Inflation Reduction Act signed into law nearly two years ago included a wave of tax subsidies for clean energy. But it’s what Congress and President Biden didn’t do in 2022 that will crush innovative energy startups. 

For roughly 70 years, businesses could fully and immediately deduct expenses in research and development. Under IRS Section 174, the provision allowed deductions for everything from investments in new equipment to scientists and entrepreneurs. As part of the Tax Cuts and Jobs Act of 2017, companies must capitalize and amortize those expenses over a five-year period beginning in 2022. Cumbersome depreciation schedules create opportunities for tax accountants but serve as a tax hike for American companies – one that disproportionately penalizes small businesses and startups. 

Read the full article here.

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