Defense industry executives say their companies could be hit with billions of dollars in taxes and cut research and development spending if Congress doesn’t delay or repeal a 2017 law that would tax spending of R&D, Nextgov reported Sunday.
The Tax Cuts and Jobs Act 2017 requires companies to deduct R&D expenses from their taxes and spread their annual claims over five years from 2021.
“Requiring companies to capitalize and write off R&D expenditures is tantamount to a significant tax increase, which will have a negative impact on innovation,” the National Defense Industrial Association said of the law in its 2022 industry assessment report.
Raytheon Technologies said its R&D spending reached about $11 billion in 2021 and it is expected to claim about $2 billion in taxes in April.
“We strongly believe, and everyone we talk to in Washington understands, that this is bad public policy,” Raytheon Technologies CEO Greg Hayes said of the law at a conference Wednesday. “It discourages investment in innovation.”
Northrop Grumman expects to take a tax hit of about $1 billion, followed by L3Harris Technologies at $650 million, Lockheed Martin at $500 million and General Dynamics and Textron at $300 million each.
“They will still invest in R&D. We just lose that ability to incentivize more,” said Eric Fanning, CEO of the Aerospace Industries Association and former Wash100 award winner.