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1 Robert Bellafiore, Amortizing Research and Development Expenses under the Tax Cuts and Jobs Act 1 (2019)

handle is hein.taxfoundation/amtzrd0001 and id is 1 raw text is: 

No. 635
Feb. 2019

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Amortizing Research

and Development Expenses

Under the Tax Cuts and Jobs Act

Robert Bellafiore
Policy Analyst

Key Findings

    Currently, businesses can choose to fully expense the costs of research and
      development (R&D); that is, they can deduct the costs of R&D from their
      taxable income in the year that those costs occur.

    Expensing is the proper tax treatment of investment and other business
      costs, as it prevents a firm's profits from being overstated in real terms.
      This lowers the cost of investment. Requiring a firm to amortize business
      costs over a number of years overstates the firm's taxable income, reducing
      business capital investment.

    Starting in 2022, the Tax Cuts and Jobs Act (TCJA) will require companies
      to amortize their R&D costs over five years, instead of deducting them
      immediately each year. This change will raise the cost of investment,
      discourage R&D, and reduce the level of economic output.

    Canceling amortization of R&D costs would result in a 0.15 percent larger
      economy, a 0.26 percent larger capital stock, 0.12 percent higher wages, and
      30,600 full-time equivalent jobs.

    Canceling amortization would reduce federal revenue by $119 billion on a
      conventional basis between 2019 and 2028, and by $99.2 billion on a dynamic
      basis. In the long run, it would reduce federal revenue by $8.43 billion each
      year, in 2019 dollars.

    The costs of canceling amortization could be offset by eliminating two tax
      expenditures: the credit union exemption and the rental loss exemption.

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