Research and Development Expensing

Floor Speech

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Mr. HERN. Mr. Speaker, it is great to see my colleague from Oklahoma from the Second District, our newest member of our Oklahoma delegation. I certainly know where his heart is on these issues that American taxpayers rely on us to be responsible for and for the money to be put to good use.

We have a critical tax cliff fast approaching at the end of 2025, with the majority of the TCJA's progrowth tax policies expiring. We are already seeing the devastating economic effects of TCJA's expired provisions, including the EBITDA interest deduction limitation, immediate deduction of R&D, and 100 percent bonus depreciation.

Ernst & Young projects that over 10 years, if the increased limitation on the interest deductibility is not repealed, 900,000 jobs will be lost; employee compensation will be reduced by $58 billion; and GDP will fall by more than $108 billion.

Twenty-six OECD countries use earnings before interest, tax, depreciation, and amortization, otherwise known as EBITDA, as an earnings-stripping limit, and zero countries in the OECD use the new U.S. EBIT-based limitation.

This stricter limitation on businesses will fall on the American worker in the form of lower wages and employment and make the U.S. less competitive in the global marketplace. We need to restore the EBITDA interest deduction limitation immediately.

Since the harmful R&D amortization requirement took effect in 2022, R&D spending's rate of growth has slowed dramatically, from 6.6 percent on average over the previous 5 years to less than 1 percent over the past 12 months.

China continues to offer a 200 percent super-deduction for R&D, and the United States remains uncompetitive at 20 percent. We need to restore immediate deduction for R&D costs, something that has been around since the middle 1950s.

Bonus depreciation will continue to ramp down for ensuing years: 80 percent in 2023, 60 percent for this year, 40 percent for 2025, 20 percent for 2026, and zero percent beginning in 2027.

Last year, the U.K. announced its commitment to make permanent its progrowth policy for full expensing. The U.S. should be looking to do the same to remain competitive in the global marketplace.

Mr. Speaker, this is more than just an economic issue. This is a national security issue. How can we expect to compete with China when it is more expensive to invest, innovate, and grow here in the United States of America?

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