James T. Brett: Fixing federal tax code for technology is crucial for protecting New England’s prosperity

The Media Lab at the Massachusetts Institute of Technology, in Cambridge, houses researchers developing novel uses of computer technology. Greater Boston has long been one of the world’s greatest technology centers, primarily because spinoffs from its universities.

— Photo by Madcoverboy

BOSTON

Here in New England, we are proud of our region’s reputation as a global innovation hub. Our region hosts some of the world’s most innovative companies, in industries ranging from defense to life sciences to clean energy to technology. Each day, these businesses are making investments in ground-breaking research and development aimed at saving lives, combating climate change, safeguarding our national security and more.

For many years, the U.S. tax code has encouraged such investments by allowing businesses to fully deduct qualified research and development (R&D) expenses each year. However, under a provision of the Tax Cuts and Jobs Act of 2017, which was signed into law by then-President Trump, businesses must amortize or deduct these expenses over a period of five years. This provision went into effect for the 2022 tax year.

This will ultimately make R&D more costly to conduct in New England and across the U.S. The New England Council believes firmly that the new R&D amortization requirement will halt and harm our region’s continued growth and leadership on the global stage.

As a result of this change, the U.S. is now only one of two developed countries requiring the amortization of R&D expenses. Comparatively, our nation’s competitors, such as China, currently provide a “super deduction” for R&D expenses that drastically increases the allowed amount deducted for companies that previously did not qualify.

This change could result in companies relocating R&D facilities and funding out of the country, because it will be more costly to do research in the U.S. This will not only damage our competitiveness, but it could also have significant national security ramifications, as well as job losses.

In fact, a recent study conducted by EY for the R&D Coalition found: “Failing to reverse this change will cost well-paying jobs and reduce future innovation-directed R&D. Requiring the amortization of research expenses will reduce R&D spending and lead to a loss of more than 20,000 R&D jobs in the first five years with the number of lost jobs rising to nearly 60,000 over the following five years. Moreover, when accounting for the spillover effect from R&D spending, nearly three times as many jobs will be affected. This same study also found that for every $1 billion in R&D spending, 17,000 jobs are supported in the U.S.”

Fortunately, two members of Congress from New England are among those leading the bipartisan charge to reverse this harmful change in the tax code.

In the U.S. Senate, Sen. Maggie Hassan ( D.-N.H.) has partnered with Sen. Todd Young (R.-Ind.) to introduce the American Innovation and Jobs Act. In addition to allowing companies to fully deduct R&D expenses each year, Senator Hassan’s bill would also raise the cap over time for the refundable R&D tax credit for small businesses and startups, and expand eligibility for the refundable R&D tax credit so that more startups and new businesses can use it.

In the U.S. House, Congressman John Larson (D.-Conn.) has teamed up with Rep. Ron Estes (R.-Kan.) to introduce similar legislation, known as the American Innovation and R&D Competitiveness Act. Similar to the Senate bill, Representative Larson’s proposal would allow companies to continue to fully deduct R&D expenses each year.

The New England Council is proud to support both of these bills, and we urge others in the business community to also encourage Congress to pass this legislation. We have written to members of the New England congressional delegation, calling on them to support these bills, and are hopeful that Congress will take action to pass them in the near future.

Doing so will help ensure that the U.S. remains globally competitive, and it will drive continued innovation and job creation right here in New England, ensuring that the region remains a global innovation hub.

James T. Brett is president and CEO of The New England Council (newenglandcouncil.com)

Llewellyn King: Technology is more powerful than politicians

Dear Candidates:

Even as you strain to tell us the wondrous things that will come about if you are elected in November, may I tell you some wondrous things that are happening anyway?

My contention here is twofold: First, not everything that changes our lives is political. Second, not all technological change has to do with the Internet.

In the same vein, not all progress will come out of the established agencies of private change, such as Amazon, Apple, Google and Tesla.

Of all things, an electric utility has moved into the world of innovation. It is the Southern Co., under the dynamic chairmanship of Tom Fanning.

Southern is on the cutting edge of utility technologies, including carbon capture and storage, and advanced coal combustion. It is also building two state-of-the-art nuclear plants in Georgia.

Fanning believes that the remit of the electric utility runs beyond the flow of electrons. Hence, one of Southern’s newest and most revolutionary undertakings: the vertical, urban farm.

According to Fanning, the idea is to go to blighted city areas where there is a shortage of fresh produce — the kind produced by truck farms — and convert old industrial and office buildings into urban farms. “We’re taking vacant, commercial buildings and creating farms that are vertical. There, produce can be grown more efficiently with our light and water systems. One of the best things is that you don’t need to use pesticides,” he told me.

Other things that are coming down the pike include the capture of carbon after combustion in power plants, steel mills and cement plants. What was a crazy scheme is almost a reality: So, be careful before you join the lynch mob of fossil-fuel haters.

Then there is the revolution in manufacturing. Now, with additive manufacturing, we can build up goods rather than cutting them to shape: no more wasted glass, plastic or steel. Houses, bridges, even guns have been printed.

It ain’t gonna be your father’s factory. So if your plan is to bring back the factories of the Industrial Revolution, better think some more. The new factories will be smaller, more dispersed and, in many cases, may be in or near workers’ homes.

And before you lay into cutting government, be sure you do not cut out vital organs like the Department of Energy’s Lawrence Livermore, Los Alamos, Oak Ridge and Sandia national laboratories that maintain our nuclear weapons and have harnessed things like the seismic technologies that have changed energy supply and kept us as the world’s leader in physics.

These labs are the muscles in the strong arm of American technology. Never forget that the Internet was invented by an arm of the Department of Defense. So do not malign government science and research.

Spare our technology, please, and do not get policy from the old tapes or old demagogues. The world is changing a lot faster than the talking points. If you are to lead it, you ought to understand that what was needed 10 years ago is not needed now, and technology will shape the future as much or more than you think you will, if elected. 

Llewellyn King is executive producer and host of White House Chronicle, on PBS. He is a longtime publisher, editor, columnist and international business executive who is now based in Rhode Island and Washington, D.C. This piece first ran on InsideSources.com.