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Why Does the U.S. Tax Code Penalize R&D?

Alex Muresianu writes in The Wall Street Journal about the need to modernize the U.S. tax code to spur research and development.

The C3 Take
  • Starting last year, companies had to spread their deductions for research and development expenses over five years instead of one, which hinders innovation.
  • With inflation, a deduction in five years will be worth less than a deduction today, effectively making R&D investments more expensive for businesses.
  • Discouraging private sector R&D with punitive tax policy hurts energy innovation which hurts domestic energy security.
  • Lawmakers should update our tax code to stimulate private sector innovation and drive energy progress.

“Returning to R&D expensing—by which investments are written off immediately—makes sense. Virtually every single country around the world allows companies to deduct the full cost of R&D—and many subsidize it heavily. China, among other countries, does so using a ‘super-deduction,’ allowing companies to deduct more than 100% of their R&D costs. In China, companies may deduct 175% of R&D expenses. The U.S. is the outlier; it punishes investment by not letting companies deduct even 100% of R&D costs.”

Read the full article here.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.

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