Industry Leaders Call on Congress to Fix R&D Tax Change by Year EndDecember 2, 2022

R&D tax change undermines national security, ability to outpace China

Arlington, Va. (Dec. 1, 2022) – The Aerospace Industries Association (AIA) today led a coalition of 14 leading aerospace and defense companies in a letter urging congressional leaders to address research and development (R&D) tax amortization by the end of the year. At a time of growing competition with China, industry leaders point to data detailing China’s increasing incentives for R&D while American innovation has been handcuffed by this harmful tax change.

“While Congress is placing a renewed focus on fragilities in our supply chain and the erosion of America’s innovation in critical technologies compared to China, it is important to recognize the important role of the tax code in incentivizing the private sector, and particularly the aerospace and defense industry, to do what it always does best—research and develop the next generation of technologies to keep the warfighter and everyday Americans safe and maintain our global economic competitiveness,” the letter states.

In additions to AIA, the letter is signed by HII, Spirit AeroSystems, Andrews Aerospace, BAE Systems, Inc., Ball Aerospace, General Dynamics, HEICO Corporation, L3Harris Technologies, Inc., Leidos, Mercury Systems, Inc., Northrop Grumman Corporation, Raytheon Technologies, Textron, Inc., and Verify, Inc., showing support from companies of all sizes, across the industry, and across the country. 

Since January 2022, American companies are no longer able to immediately expense the full value of their investments in R&D in the year they were incurred. Now companies of all sizes must spread these costs over five years, making R&D more costly to conduct in the U.S. Since taking effect, AIA has repeatedly advocated for Congress to reverse course on the harmful tax change, including an op-ed in Breaking Defense and an earlier letter from 19 A&D companies. 

The full text of the letter is available here and below.  

November 30, 2022

Dear Speaker Pelosi, Majority Leader Schumer, Republican Leader McConnell, and Republican Leader McCarthy:

The urgency of restoring the full deductibility of Research and Development (R&D) expenses by year end cannot be understated. Congress must address this harmful tax change in any end-of-year legislation.

It is more clear than ever before that U.S. competition with China is growing and exacerbated every day that we continue to handcuff American innovation. While Congress is placing a renewed focus on fragilities in our supply chain and the erosion of America’s innovation in critical technologies compared to China, it is important to recognize the important role of the tax code in incentivizing the private sector, and particularly the aerospace and defense industry, to do what it always does best—research and develop the next generation of technologies to keep the warfighter and everyday Americans safe and maintain our global economic competitiveness.

Between 2000 and 2019, China’s share of global R&D rose nearly 488 percent, from 4.9 percent to 23.9 percent.1 At the same time, China extended its super deduction for R&D expenses for manufacturing companies to an extra 100 percent of eligible R&D expenses in addition to actual expenses incurred. That means for every $100 spent on innovation, Chinese companies can deduct $200, ten times more than American companies in a similar situation.

These financial implications undermine our national security and our ability to outpace the growing China threat. As leaders of America’s leading aerospace and defense companies, we urge you to close out the 117th Congress by addressing the R&D amortization requirement and in doing so, taking strong action to strengthen our global R&D posture relative to China and other nations.

Respectfully,

cc:
Senator Ron Wyden
Chair, Senate Finance Committee

Senator Mike Crapo
Ranking Member, Senate Finance Committee

Congressman Richard Neal
Chair, House Ways and Means Committee

Congressman Kevin Brady
Ranking Member, House Ways and Means Committee