Protect Jobs and Encourage Innovation—Make the U.S. Pro-R&D

By: Sharon Heck, Chief Tax Officer, Intel, Chair, R&D Coalition 

 The U.S. is now one of only two developed countries—the other being Belgium—with a tax policy that directly stifles innovation.  

Since 1954, companies have deducted research and development (R&D) expenses in the year incurred. Yet, last year, the U.S. adopted a policy that would make R&D more costly by requiring businesses to deduct these expenses over a period of years. This change reduces the incentive to invest in R&D in the United States. While the private sector has focused on creating new ideas and technologies, the tax law has reversed nearly 70 years of pro-innovation policy. 

According to the latest GDP report, private sector R&D investment declined in the third and fourth quarters of last year. This is the first consecutive quarterly decline in private sector R&D investment in more than seven years. This is a troubling trend for a country and an economy built on innovation.  

What’s at stake 

Research and development, including investments in intellectual property, drives well-paying jobs, innovation, competitiveness, and strong national security.  

R&D investment is first and foremost a jobs issue, with wages and salaries comprising approximately 75% of R&D spending, according to IRS data. This fact adds additional pressure from the current cashflow mismatch between taxes and expenses. 

Over the past decade, the private sector has more than doubled R&D spending, according to data from the National Science Foundation. This is across a host of industries, including aerospace, pharmaceuticals, and semiconductor manufacturing. 

The private sector spent $612 billion, or more than 75% of total R&D spending in 2021, according to the National Science Foundation, with manufacturers performing 55% and small businesses 15% of all private sector R&D, respectively. Intel is one of the largest worldwide investors in R&D and invested $17.5 billion in R&D in 2022.  

U.S. businesses in 2020 that engaged in R&D employed 22 million Americans as researchers, technicians, and support staff. These direct R&D jobs are well above the national average with an average wage of more than $140,000 a year.   

A separate analysis finds that for every $1 billion of U.S. R&D spending, 17,000 jobs are supported in the U.S. And according to a recent economic analysis by the National Association of Manufacturers, the R&D tax change will result in a loss of more than 260,000 U.S. jobs and an $82 billion loss in GDP in 2023 if the harmful change is not reversed quickly. 

The global implications of doing nothing 

This is not just a jobs, innovation, and competitiveness issue, it is also a national security issue.  

As the U.S. is reducing incentives to invest in R&D, China is moving in the opposite direction. It has expanded deductions for R&D expenses for manufacturing companies to an extra 100% of eligible R&D expenses, in addition to actual R&D expenses incurred. As a result, a manufacturer that undertook $100 of R&D in the U.S. would deduct $10 in 2022; if the same company undertook $100 of R&D in China, it would deduct $200—20 times as much. 

As industries seek to rebalance the over-concentration of manufacturing capacity from one geographic region, now is not the time to stifle R&D. 

Congress should act now to help U.S. companies compete 

In March, the Senate introduced the bipartisan S. 866, the American Innovation and Jobs Act to end the competitive disadvantage this tax treatment for U.S. innovation. We are also seeing strong, bipartisan support in the House of Representatives with the introduction of H.R. 2673, the American Innovation and R&D Competitiveness Act. Together, these bills signal a strong desire by Congress to restore this important jobs tool.  

The consequences are already adding up and the impact is being particularly felt by small businesses who were caught off guard by this change in law and related cashflow crunch.  

I applaud the introduction of these bills and, as Chair of the R&D Coalition, encourage Congress to act as soon as possible to reverse the R&D amortization requirement and prevent the loss of jobs and innovation necessary to ensure America’s future competitiveness.