OVERVIEW
For questions on the note below, please contact Edmund Perry or Ruth Lunsford.
On November 19, the Joint Economic Committee held a hearing entitled “Building on the Success of the Tax Cuts and Jobs Act: The 2025 Tax Policy Debate.” One of the main issues discussed in the hearing was the research and development (R&D) tax deductions discussed over the last year.
Witnesses in the hearing were:
- The Honorable Kevin Brady, Former Chairman of JEC and House Ways and Means
- Dr. Douglas Holtz-Eakin, President of American Action Forum
- Ms. Samantha Jacoby, Deputy Director of Federal Tax Policy at the Center on Budget and Policy Priorities
- Mr. John Arensmeyer, Founder and CEO of Small Business Majority
Below are high-level takeaways of the hearing prepared by Delta Strategy Group.
KEY TAKEAWAYS
- The Trump Tax Cuts and Jobs Act (TCJA) will be a central focus of next Congress as Republicans work to extend parts of the bill set to expire next year. Representative Nicole Malliotakis (R-NY) voiced strong support for the legislation, saying it created jobs, raised wages, and reduced child poverty through economic growth. However, Democrats like Representative Don Beyer (D-VA) dissented, pointing to IMF and Congressional Research Service findings showing little real impact on growth compared to pre-TCJA periods.
- The R&D tax deduction emerged as a critical policy issue in the discussion, particularly regarding international competitiveness. Senator Maggie Hassan (D-NH) raised significant concerns about the current state of R&D tax policy, noting that American businesses can now only immediately deduct $100,000 for every $1 million invested in R&D, following the deduction’s expiration in 2022. This sharply contrasts China’s approach, where the government provides a 200 percent “super deduction” for R&D, effectively giving companies an immediate $2 million deduction for every $1 million invested.
- Senator Hassan (D-NH) emphasized that restoring the full R&D deduction is vital for both national security and economic development. She argued that when American companies invest in R&D to develop new products and technologies, it stimulates the economy, promotes job growth, and helps the U.S. compete against countries like China. Senator Hassan (D-NH) said that this issue is central to America’s strategic competition with China and critical to the country’s future economic growth.
- Witnesses in the hearing raised concerns with the current limited R&D deduction structure. One of these concerns was that the lack of a robust R&D credit could create a skewed incentive structure where businesses might choose other investments over R&D simply because they can fully deduct those alternatives. Witnesses also raised concerns with the inability to fully expense R&D creates significant cash flow problems.