One of companies’ biggest goals in Republicans’ tax bill is reviving the full, upfront deduction for research and development spending — finally.
The multiyear wait to bring back the expired R&D boost has shown the risks when Congress lets popular tax cuts expire to save on costs. The R&D benefit has wide support on Capitol Hill, but it’s been off the books since 2022. Broader political headwinds got in the way of a revival, until now.
Republicans plan to bring back the lucrative deduction in their filibuster-proof reconciliation package. The question is how big will they go.
The positive for R&D backers: There’s a lot of interest in the GOP in bringing back some of the big business tax breaks retroactively, even though companies won’t get all the lost years back.
President Donald Trump said he wanted to revive another business incentive — full 100% expensing for buying short-term assets like machinery and equipment — back to Jan. 20. That is, of course, Inauguration Day. That sort of thinking is at play for R&D too.
Republicans want to juice more economic growth from their tax package, so pieces like R&D are critical to building that case and encouraging more corporate investments.
R&D’s challenge: Money — it’s tight. With pressure from House GOP deficit hawks, extensions of the 2017 tax cuts, every one of Trump’s tax priorities and anything else Republicans want to add are competing for space.
Using a “current policy baseline” to calculate the deficit impact of extending tax cuts that expire this year would slash their cost because it would treat them as an extension of current law, not new policy. But R&D is already gone, so it would still have a price tag under that scoring method, making it harder to make it permanent in that scenario.
Still, some backers are optimistic that the baseline would give them more room to push for more on R&D.
When Republicans were trying to keep the cost of the 2017 tax cuts down, it made sense to make bipartisan tax breaks expire over more partisan ones. In theory, Democrats would easily partner with Republicans to keep the R&D treatment going some years down the line. But we just saw a divide over the child tax credit get in the way for several years.
As we’ve pointed out, there are tough trade-offs ahead for Republicans in figuring out how much they can fit in their tax bill and how much it’s worth it to dig into offsets.
We asked Sen. Roger Marshall (R-Kan.) about prioritizing R&D in the bill against other tax cuts, he summed up the mood pretty well:
“I mean, it’s like asking which one of your children is your favorite,” he said. “But it is huge, and it’ll be a great investment.”
