Opinion By: Al Samuels, President/CEO, Rockland Business Association
American innovation and its primary driver, private sector research and development (R&D), have long served as the bedrock of our country. Our ability to innovate has made us the envy of our peers, while domestically, our economy has benefitted – growing and bringing about high-quality, good-paying jobs.
New York is at the leading edge of these gains, with $18 billion in annual state private sector R&D expenditures that the state’s businesses produce.
In Rockland County in particular, major employment stems from the bio-med, advanced manufacturing, and data/IT fields. In the last few years, Pfizer’s efforts in our county contributed greatly to the hundreds of millions of COVID-19 vaccine doses that were delivered across the country. While elsewhere in the Hudson Valley, there are billions in investment in a computer chip factory, which will lead to over a thousand new good-paying jobs. It’s clear that R&D have driven us forward. But recent changes to the tax code threaten this economic growth and the associated jobs, not just in New York, but across the country.
From 1954 to December 31, 2021, businesses that were engaged in R&D activities were given two options on how to deduct those expenses from their tax bill – they could either immediately deduct 100 percent of those expenses in the year in which they were incurred, in a process known as full expensing, or they could deduct those expenses over a five-year period in what is known as amortization.
January 2022, however, marked a new era in the treatment of R&D expenses. Owing to a provision in the 2017 Tax Cuts and Jobs Act that took effect, the ability to fully expense R&D costs was eliminated.
Businesses have now been left with amortization as their sole option and are mandated to slowly deduct their R&D expenses over five years for costs incurred inside the U.S. and 15 years for costs incurred internationally.
Amortization may be the law of the land, but to most, it’s an unwelcome policy change that was never intended to take effect. The punishing nature of the law is already harming businesses, and the primary victim is small- and medium-sized businesses who this past Spring were faced with unforeseen tax bills totaling hundreds of thousands of dollars that they couldn’t afford to pay.
Luckily, there remains the possibility of relief. The last two sessions of Congress have seen legislation to restore full expensing gain dozens of Democratic and Republican co-sponsors in the House and Senate.
In this session alone, over 110 House members from both parties have signed on to legislation to restore full expensing, and in turn support a future of economic growth.
Across the country, R&D supports 20 million U.S. jobs and contributes four percent to the U.S. GDP.
And data shows that $1 billion in R&;D spending contributes to 17,000 jobs and $1.4 billion in labor income. Over the next 10 years alone, restoring full expensing and the bustling R&D and innovation gains that come as a result could create 1.2 million jobs and billions in employee earnings.
In Rockland County, whether it be developing new medicine through one of our many pharmaceutical ventures, moving forward on new electrical grid projects through Orange & Rockland Utilities, or advancing data and technology work, R&D is needed. And our county needs the jobs that come from it.
From private businesses to the halls of Congress, there’s universal agreement that the only path forward is a restoration of full expensing. It’s needed for our businesses, our industries, our economy, and our workers. Innovation drives the American economy, and Congress needs to act quickly to ensure that it can continue to do so.