Defense, aerospace execs call for delaying R&D tax change in microelectronics bill

By Briana Reilly / July 5, 2022 at 1:36 PM

Defense industrial leaders are calling on lawmakers to use legislation aiming to bolster microelectronics production as a vehicle for delaying a research and development tax change that executives say "will stifle American manufacturing and innovation investment."

Led by the Aerospace Industries Association and endorsed by 19 company leaders from L3Harris Technologies, Northrop Grumman, Raytheon Technologies and others, the letter targets a provision stemming from the 2017 tax law approved under then-President Trump that requires firms to deduct their R&D expenses over a five-year period rather than immediately.

The language has been a target of companies since before it went into effect earlier this year, though lawmakers have also signaled a willingness to postpone it or roll it back.

“Reversing the R&D amortization requirement is not just sound tax policy but will also provide direct benefits to maintaining our competitive edge against China and supporting our manufacturing workforce,” company executives wrote in the June 30 letter addressed to House and Senate leaders.

The letter specifically asks that such a change be included in legislation that aims to enhance U.S. technological competitiveness. Currently sitting in conference committee as a group of bipartisan members work to reach consensus, that bill has been inching its way through Congress over the last year.

Included in the legislation is financial backing for chips research programs that have gone unfunded since their creation under the Fiscal Year 2021 National Defense Authorization Act. With the microelectronics supply chain centralized in the Asia-Pacific region, Deputy Defense Secretary Kathleen Hicks said last month that passing the measure and bringing production onshore is "the most important thing that can be done right now" to address semiconductor supply issues.

As part of a series of nonbinding instructions to the conference committee that senators approved in early May, Sens. Maggie Hassan (D-NH) and Todd Young (R-IN) proposed directing the panel to push for “immediate expensing” of R&D investments. Young had previously been named as a member of the committee.

Last week’s letter referenced the “overwhelmingly strong” 90-5 vote backing that motion, with executives noting the “bipartisan and bicameral support for restoring the ability to immediately expense R&D costs in the Bipartisan Innovation Act.”

“American companies have always played a leading role in advancing the technology we need to maintain our competitive edge, notably in the defense sector,” the letter adds. “Similarly, we must use every tool at our disposal to emphasize and encourage research and development like China does.”

The Senate first passed its version of the competitiveness bill in June 2021, and the House approved its own the following February. Senators then signed off on the House’s version in March, clearing the measure’s path to conference for negotiations.

The portion of the House’s version of the legislation relating to microelectronics, known as the Creating Helpful Incentives to Produce Semiconductors for America Fund, includes $52 billion in spending for fiscal years 2022 through 2026, according to a Congressional Budget Office cost estimate. Reuters reported last month that Democratic leaders in the Senate and House indicated they could see the semiconductor language making its way through Congress in July.

Beyond AIA, L3Harris, Northrop and Raytheon, the following companies signed onto the letter: Aero-Mark; Click Bond; Kratos; Mercury Systems; Verify; Huntington Ingalls Industries; Andrews Tool Co.; General Dynamics; Norsk Titanium; Sierra Nevada Corp.; IgniteLI, the Manufacturing Consortium of Long Island; Spirit AeroSystems; BAE Systems; GSE Dynamics; Leidos; and Textron.