Preserving the Ability for American Innovation (Restoring Sec. 174)

International companies operating in the United States spend over $71 billion on U.S. R&D activities and support 245,300 American R&D jobs. The Global Business Alliance has engaged lawmakers on a bipartisan basis to reverse last year’s Section 174 change, which eliminates the ability of companies to deduct their research and development (R&D) investments in the year they are made. This has been allowed by the tax code for over 50 years and has wide bipartisan support in both chambers of Congress.

The U.S. has a long history of recognizing research and development’s value in increasing innovation. Congress has allowed businesses to fully deduct their R&D expenses under Section 174 in the year they are incurred. Since 2022, businesses must now amortize such expenses over a longer period of five years. This has increased the tax cost for research by companies and will potentially lead to thousands of jobs lost over the next five years.

Requiring amortization of these R&D expenses makes the United States a global outlier, as nearly every country permits full deductibility, and some even provide tax benefits greater than 100 percent deductibility. Legislation to repeal this provision will ensure that the R&D tax credit and the ability to deduct R&D expenses remain an effective engine for American innovation. The Senate introduced legislation this Congress, The American Innovation and Jobs Act (S. 866), to restore incentives for long-term R&D investment. GBA supports the restoration of incentives, as it encourages long-term R&D investment, thus increasing foreign direct investment in the U.S.

We thank Senators Hassan and Young for reintroducing the bipartisan American Innovation and Jobs Act to allow businesses to fully deduct R&D expenses and incentivize future long-term R&D investment in America.