R&D Tax Provision Stifles Innovation

I’ve seen the transformative difference engineering can make in the lives of Nevadans, but this tax change has me—as well as many others at smaller engineering firms—gravely concerned as R&D assumes a pivotal role in our work.

Mark Casey
03/02/2024 07:52 PM

R&D Tax Provision Stifles Innovation — *Mark Casey is a Principal Engineer at Wood Rodgers Inc.*

By trade, engineers are called upon to solve some of our biggest challenges. From building bridges to designing roads to creating safer building materials, engineers at their core are problem-solvers. But engineers in Nevada and the rest of the country are facing undue financial burdens thanks to a misguided tax change that, if not fixed by Congress before the end of the year, could spell real trouble for small engineering firms and other local businesses.

As Principal Engineer at Woods Rodgers Inc., I’m proud to work in an industry that takes pride in solving challenges and encouraging research and development (R&D) that connects communities across Nevada. I’ve seen the transformative difference engineering can make in the lives of Nevadans, but this tax change has me—as well as many others at smaller engineering firms—gravely concerned as R&D assumes a pivotal role in our work.

This provision mandates that businesses engaged in R&D must now deduct these costs over a five-year period, creating larger tax burdens, especially for smaller companies. Previously, R&D expenditures could be expensed in the very same year they were incurred, making it much easier for smaller businesses to invest in this space. Because of this change, small companies now face a higher tax burden each year, making it more difficult to meet overhead costs, from operations to payroll.

Not to mention, R&D is critical for engineering, from gathering data and running tests to ensuring safety for the public. The benefits that R&D brings to the engineering industry and our society are unmatched, resulting in the creation of new technologies, services, and other innovations that enhance our daily lives. However, all of this is at risk should this tax provision not be immediately repealed before the end of the year.

Studies have shown that this tax provision, in its current iteration, will lead to widespread economic harm. A report found that this provision will decrease R&D spending in the United States to the tune of $4.1 billion, resulting in a loss of 23,400 R&D jobs in each of the first five years of this tax’s enactment.

This is unacceptable—we need Congress to take action now. Fortunately, Senators Cortez Masto and Rosen, as well as Representatives Titus and Lee, have cosponsored legislation in the Senate and House to fix the R&D tax. But that is not enough—we need Congress to act now before time runs out.