Policy and Legal

For more than two years, manufacturers have not been able to immediately deduct their R&D expenses—and it’s taken a toll, particularly on small businesses.

What’s going on: For more than 70 years, the U.S. tax code allowed manufacturers to immediately deduct their R&D expenditures. But since the expiration of this key provision in 2022, manufacturers have been required to amortize their R&D costs over a period of years.

Why it’s important: As a direct result of the expiration, manufacturers’ tax bills have increased, according to a new NAM tax explainer released as part of the NAM’s “Manufacturing Wins ” campaign. This means manufacturers are now less able to conduct groundbreaking research and support well-paying R&D jobs.

Uneven playing field: The U.S. is now one of just two developed nations that requires the amortization of R&D expenses.

• The policy makes the U.S. less competitive against China, which offers companies a 200% “super deduction” for R&D costs.
• In 2022, the first full year after the expiration of immediate R&D expensing, the European Union’s R&D growth surpassed that of the U.S. for the first time in nearly a decade—and China’s R&D growth was triple that of the U.S.

What should be done: The NAM is calling on Congress to restore immediate R&D expensing, along with other pro-growth tax provisions.

The last word: “It is imperative that the U.S. tax code support job-creating, life-changing R&D,” said NAM Vice President of Domestic Policy Charles Crain. “Congress must act to bolster manufacturing innovation and American competitiveness by reinstating immediate R&D expensing.”