Why Congress Should Restore Full Expensing for Investments in Equipment and R&D

November 8, 2022
  • Investments in R&D and equipment drive innovation, growth, and competitiveness. But most of the benefits of these investments accrue to society, not to individual firms, so tax incentives encouraging firms’ expenditures are an important public good.
  • Full expensing of investments in equipment—which allows firms to deduct the full real value of their expenditures—begins phasing out in 2023, and R&D expenses must be amortized over a five-year period starting in 2022.
  • These changes will decrease firms’ incentives to invest in key drivers of growth and competitiveness. In fact, empirical evidence suggests U.S. firms already severely underinvest in capital equipment and R&D, since the returns flow largely to others.
  • The scheduled changes also will make U.S. firms less competitive versus their foreign counterparts, which often receive larger tax incentives for these expenses.
  • The Accelerate Long-term Investment Growth Now (ALIGN) Act and the American Innovation and Jobs Act would reverse these changes. Congress should pass them both.
  • More generally, lawmakers should craft the corporate tax code to maximize economic growth and societal well-being.