By Sharon Heck, Corporate Vice President of Finance and Chief Tax Officer, Intel; Chair, R&D Coalition
Today, I had the honor of participating in a Research & Development (R&D) Coalition Congressional House Briefing, where I shared Intel’s perspective on the critical role of R&D in the U.S. economy and its infrastructure. Strong investment in R&D has provided the backbone of many of our nation’s greatest technological feats over the last 50 years. The U.S. is estimated to have spent over half a trillion dollars on R&D, with the vast majority coming from the private sector.
U.S. tax policy has for decades played a major role in supporting the private sector’s commitment to research and development. Tax incentives, such as allowing an immediate write-off of qualifying R&D expenditures, has helped industries across all sectors lower the cost of investment and thus fund amazing innovations. At Intel, we have fueled job growth and the development of new technologies that have had significant economic benefits, from 5G to artificial intelligence, and we are the only company that has built leading edge fabs in the U.S. over the past five years. Intel’s investment in these types of R&D projects supports millions of American jobs every year. Additionally, we are committed to on-going investment in domestic semiconductor manufacturing capabilities.
However, U.S innovation leadership is at risk. The U.S. faces increasingly fierce competition for investment dollars, and its share of global R&D investment has steadily decreased. Given the critical impact of these types of investments on our nation’s economy, we urge Congressional leaders to maintain a favorable environment for R&D spending.
For the past 67 years, companies have been able to immediately deduct R&D expenses. But, starting in 2022, alterations from the Tax Cuts and Jobs Act will make it more expensive for companies to undertake R&D by requiring businesses to amortize – or gradually write-off – R&D expenses over a period of years.
If this change takes effect, in the first five years of implementation, it is estimated that amortizing R&D expenses will reduce R&D spending by $4.1B, eliminating roughly $5.8B of labor income and 67,700 jobs. In ten years, it will reduce R&D spending by $10.1B, erasing $14.4B of labor income and 169,400 jobs. Rather than creating jobs, this change in the law will curtail current and future job opportunities and lower labor income.
This is not the time to curb R&D investment and spending. This change to the U.S. tax system will harm U.S. innovation, jobs and competitiveness, significantly increasing the cost of R&D. The U.S. should continue its decade long tax policy of supporting companies that drive innovation rather than continue to scale back tax incentives that in their current state are already not competitive globally.
Fortunately, there is bipartisan, bicameral support for a resolution. The American Innovation and R&D Competitiveness Act introduced in the House by Reps. John Larson(D-CT) and Ron Estes (R-KS), and the Senate American Innovation and Jobs Act, by Sens. Maggie Hassan (D-NH) and Todd Young (R-IN), further recognize the importance of continuing to support R&D. The ability to deduct R&D expenses in the same year they are incurred is essential to maintaining the U.S.’s competitive edge, enhancing our R&D investments, and sustaining our leadership in the development of critical goods.
Moreover, earlier this year, President Joe Biden recognized the importance of R&D investments in an executive order, acknowledging the critical role of R&D to the U.S. economy in ensuring America meets the competitive challenges posed by other nations. Given this appreciation, we urge the Biden Administration to work with bipartisan leaders in Congress to prevent the capitalization of R&D expenses, which would erode businesses’ ability to invest in R&D.
The U.S. must continue to create a supportive business environment for R&D, but that can’t be achieved under the current law. The tax law must be amended to foster an economy driven by constant and plentiful investment in R&D. Passing this legislation into law this year would send a powerful signal to the rest of the world that the United States is fully committed to maintaining its global leadership in innovation.
We applaud the bipartisan efforts of Congress to correct this policy. We look forward to working with all members of Congress to develop and promote smart public policy that pushes our nation forward on critical technology advancements that will benefit all members of society.