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Bipartisan Senate group presses leadership for R&D tax break

Signatories on letter seeking restoration of lapsed business tax benefit backed by major corporations include vulnerable Democrats

Sen. Raphael Warnock, D-Ga., questions Jerome Powell, the head of the Federal Reserve, during a Senate Banking Committee hearing on March 3.
Sen. Raphael Warnock, D-Ga., questions Jerome Powell, the head of the Federal Reserve, during a Senate Banking Committee hearing on March 3. (Tom Williams/CQ Roll Call)

Fifteen senators, including the most endangered Democrats up for reelection in November, are urging congressional leaders to include a bigger tax break for research and development and small-business incentives in any upcoming legislative package, days before the chamber may vote on a massive omnibus spending bill.

Sens. Maggie Hassan, D-N.H., and Todd Young, R-Ind., led a bipartisan letter Friday saying that unless Congress quickly restores full and immediate R&D expensing, American jobs and investment are at risk.

The call comes as policymakers are aiming to pass an omnibus spending package for fiscal 2022 before a March 11 government funding deadline. That package is likely to be the quickest vehicle to enact changes, given even popular tax efforts are difficult to move on their own.

In their letter, the senators asked Majority Leader Charles E. Schumer and Minority Leader Mitch McConnell to “support U.S. economic competitiveness and innovation in any upcoming legislative package by expanding the research and development tax credit for small businesses and preserving full and immediate expensing for R&D investments.”

Companies could deduct all of their R&D spending from their taxable income right away until this year. Then a change included in the 2017 GOP tax overhaul requiring companies to gradually write off those expenses over five years took effect starting in 2022. The switch could cost companies $8 billion in higher taxes by mid-April and $29 billion by the end of September, according to the Joint Committee on Taxation.

[Major corporations make last-ditch push for R&D tax break]

That switch helped pay for other tax cuts in the 2017 law, but reversing it is a top priority for members on both sides of the aisle.

Hassan and Young, both members of the tax-writing Finance Committee, introduced a bill last year that would restore immediate R&D expensing, double a cap on research tax credits for new and small businesses and continuously raise it over the next decade, and expand startups’ access to research credits.

Hassan has championed several bipartisan tax provisions that businesses or nonprofit organizations hope to attach to upcoming legislation. She’s among Senate Democrats considered vulnerable in this fall’s midterms; Inside Elections with Nathan L. Gonzales rates her seat Tilt Democratic.

Other Democrats who signed on to the letter include senators expected to face some of the toughest races in November. Sens. Catherine Cortez Masto of Nevada, Raphael Warnock of Georgia and Mark Kelly of Arizona all signed on. Inside Elections rates each of their seats as a Toss-up.

Other senators who endorsed the message are Democratic Sens. Kyrsten Sinema of Arizona, Jeanne Shaheen of New Hampshire, Dianne Feinstein of California and Jacky Rosen of Nevada, along with Republican Sens. Roger Marshall and Jerry Moran of Kansas, Marco Rubio of Florida, Roger Wicker of Mississippi, John Boozman of Arkansas and Joni Ernst of Iowa. Of those Republicans, only Rubio’s seat is considered even remotely at risk, earning a Likely Republican ranking from Inside Elections.

The senators’ effort follows a push by some of the largest U.S. corporations to restore full R&D expensing by attaching a provision to the delayed fiscal 2022 spending package. CEOs of Intel Corp., AT&T Inc., 3M Co., Raytheon Technologies Corp. and 32 other companies sent a letter to congressional leadership this week warning of consequences if expensing isn’t restored by the end of the first quarter.

Senate Finance Chair Ron Wyden, D-Ore., said this week that he hoped to reverse the change and that it’s an issue “right at the top of the list” when addressing U.S. competitiveness. Intel, which led this week’s letter, is the top employer in Oregon.

House tax writers are trying to attach a bipartisan retirement savings bill to the omnibus, a move that would create a tax title and potentially open the package to further tax add-ons.

[Bipartisan retirement bill could hitch a ride on omnibus]

Political dynamics

But political dynamics may keep the popular R&D change from passing imminently. Democrats included a delay of the switch to a less generous break to fiscal 2026 in their $2.2 trillion social safety net and climate package. With that bill, encompassing much of President Joe Biden’s domestic agenda, stalled in the Senate, it’s tougher to break out and pass a business tax break.

Andrew Grossman, chief tax counsel for House Ways and Means Democrats, said at the Federal Bar Association conference in Washington on Thursday that it’s a problem for the party if they seem to be prioritizing business benefits ahead of those for lower- and middle-income households — like the child tax credit and earned income tax credit, which would’ve both been expanded in the $2.2 trillion reconciliation bill.

“It creates something of a political dilemma,” he said.

A pair of similar bills passed by both chambers that are now being reconciled, aimed at bolstering economic competitiveness with China, could also be a fit for the R&D expensing provision. Legislation to restore popular tax provisions that expired at the end of 2021, known as an “extenders” package, could also be an option if the issue slips to later in the year.

Lawmakers would likely make any change retroactive to the start of 2022, regardless of when it passes this year. Still, companies are hoping for a swifter resolution, warning in their letter that a longer wait will slow innovation.

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