Today’s R&D dollars create tomorrow’s jobs

America is lagging in research and development — and it could get worse.

Throughout much of our 246-year history, the world has considered us the global leader in innovation. The United States is known for our creation and advancement of aviation, photography, space exploration, telecommunications, computer technologies and agricultural production. We’ve invented everything from the air conditioner to the zipper.

But now, we risk hindering further research and development breakthroughs because of a detrimental tax provision that kicked in last year. Full expensing for research and development (R&D) was allowed through the end of 2021. However, since the beginning of 2022, businesses have been required to spread out or amortize R&D expenses over five years for domestic R&D or 15 years for foreign R&D.

Unfortunately, this is feeding a disturbing trend in the United States. According to the R&D Coalition, the U.S. share of global R&D investments in 2019 was 30 percent, down from 33 percent in 2009 and 40 percent in 1999.

At the same time, China’s global share of R&D investment has gone up — it was 24 percent in 2019, a big jump from just 5 percent in 2000 and 15 percent in 2009. That means China’s R&D investments have increased by 400 percent in just two decades.

This increase in Chinese R&D investment is no accident — China has implemented a deduction of up to 200 percent on eligible R&D investments. And without action to undo the United States’s R&D amortization tax provision that kicked in last year, China will go from having 2.7 times more favorable tax benefits for R&D to being 5.7 times more favorable than the United States.

Without an incentive for homegrown R&D, the U.S. also loses out on creating new jobs. The R&D Coalition says, “For every $1 billion of U.S. R&D spending, 17,000 jobs earning $1.4 billion are supported in the United States.” They also note that unless the R&D amortization policy is reversed, the U.S. stands to lose 410,000 jobs, $57.5 billion in labor income, and $71 billion in R&D spending over the next 10 years.

Now is not the time to keep sliding behind, but thankfully, there’s a bipartisan solution.

Earlier this year I reintroduced the American Innovation and R&D Competitiveness Act in the House. Rep. John B. Larson (D-Conn.) joined me as the lead Democrat, and we have signed on 100 other Republican and Democratic co-sponsors — signaling a high level of support and bipartisanship for this common sense bill. Last week, this legislation was included in a larger legislative tax relief and jobs package put forward by the Committee on Ways and Means, which was reported out of committee Tuesday.

The legislation is simple — it allows for immediate expensing on eligible R&D costs, bringing us back to where we were just a few years ago and helping us secure our dominance in research and development.

Not only has this bill gained traction in Congress, but it’s widely supported among industry leaders.

Kip Eideberg, senior vice president of government and industry relations for the Association of Equipment Manufacturers, said, “The American Innovation and R&D Competitiveness Act offers a much-needed boost for the equipment manufacturing industry at a time when America faces adverse inflation and strained supply chains.”

“Rather than investing in R&D, which includes growing their workforce, many [small businesses] are at a standstill with how to proceed unless Congress acts soon,” said Eric Fanning, president and CEO of the Aerospace Industries Association.

And the National Taxpayers Union has called this bill a “no-brainer.” In their annual collection of bills that should pass easily because of their broad bipartisan support and seriousness in solving a problem, this legislation has been featured and then subsequently listed as an honorable mention, as bills can only be on their list once.

There’s no question that this bill will benefit innovators and manufacturers across the country. Like many districts in the United States, R&D is critical for manufacturing in my home state of Kansas. There are more than 54,000 manufacturing workers in the 4th District of Kansas, with 75 percent of manufacturers having 20 or fewer employees.

This isn’t just about major corporations. R&D supports businesses of all sizes. According to the R&D Coalition, about 15 percent of private U.S. R&D investments are made by small businesses with fewer than 500 employees.

The choice is clear — make this needed change to our tax code that will generate innovation and foster job growth, or cede ground to our adversaries and watch as jobs flourish outside our borders. By disincentivizing R&D here at home, we’re encouraging manufacturing and production to move abroad. The bipartisan American Innovation and R&D Competitiveness Act reverses that trend.

Today’s R&D dollars create tomorrow’s jobs, and we need to keep R&D dollars inside our country where they will help strengthen American businesses and workers.

Ron Estes, one of only a handful of engineers in Congress, worked in the aerospace, energy and manufacturing sectors before representing Kansas’s 4th District since 2017. He is a fifth-generation Kansan, former state treasurer, and serves on the House Committee on Ways and Means, Budget Committee, and Education and the Workforce Committee.