A tax code time bomb fueled mass tech layoffs. A GOP senator says fixing it now is 'critical'
Republican senators want to make immediate deduction of research and development expenses in the U.S. permanent in Trump's big bill
North Dakota Republican Sen. Kevin Cramer
(Samuel Corum/Getty Images)
A key GOP senator says it's a "critical" priority for Republicans to restore a business-friendly tax provision that allows for the immediate deduction of certain research and development expenses as part of the party's sweeping domestic policy bill.
"The opportunity to deduct is huge," North Dakota Sen. Kevin Cramer, a member of the Senate Banking Committee, told Quartz on Wednesday. "It was a huge, almost revolutionary thing when we passed it in the first place. Making it permanent, allowing bonus depreciation and deductibility in the year that you purchase something, is a clear pro-business, pro-growth policy."
Prior to 2022, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs. The deduction was guaranteed by Section 174 of the IRS Code of 1954, and under the provision, R&D flourished in the U.S. But a delayed change to that decades-old tax rule — buried deep in Republicans' 2017 tax law — shifted Section 174 from immediate expensing of R&D to mandatory amortization, meaning that companies must spread the deduction out in smaller chunks over five or even 15-year periods.
That change contributed to the loss of hundreds of thousands of high-paying, white-collar jobs, according to a Quartz investigation published earlier this month.
The House-passed GOP megabill would restore the immediate deduction for research and development activities in the U.S., but only through 2029, at a cost of $23 billion, according to the Committee for a Responsible Federal Budget.
Republican senators, though, aren't interested in the provision's limited shelf-life in the House bill. They scrapped it in their version of the legislation, and made the restoration of the tax break permanent. Immediate expensing for U.S. R&D activities without an end-date would cost $141 billion over a decade, a steeper price tag as a result.
"Making it permanent has the advantage of not only having a really good policy for the rest of this year, but permanency is just one more stabilizing factor," Cramer said in a brief interview on Capitol Hill. "And stable, predictable tax policy is good for investment. People can plan so much better around that."
Republicans are scrambling to pass the massive package of tax and spending cuts by July 4, a deadline set by President Donald Trump.
—Catherine Baab contributed to this article.