RESEARCH AND DEVELOPMENT AMORTIZATION
Research and Development (R&D) Amortization was in the 2017 Tax Cuts and Jobs Act in a section going into effect in 2022. After 2022, companies will be required to amortize R&D costs over 5 years instead of being able to deduct them in the immediate year. This is the first time since 1954 that companies cannot deduct the full R&D expense immediately, and this change will lead to the costs of research and development being largely overstated. See below to see the impact of reversing this policy and cancelling R&D amortization.
ISSUES WITH R&D AMORTIZATION
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Amortizing over a set number of years would overstate the taxable income of a firm and reduce business capital investment. This will create an anti-growth and anti-competition environment that discourages the future innovations that will propel American economic growth, and could result in the overstatement of taxable income. Risk taking in R&D should be encouraged.
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This policy will raise the cost of investment, discourage research and development, and reduce economic output, overall damaging the American economy. Additionally, it will discourage investment because it reduces the aftertax earnings below what is required to make a sound and worthy investment.
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Since R&D Amortization requires firms to deduct assets over years or decades it additionally reduces the present value due to inflation and the innate valuation of money and thus the overall tax burden increases as well.