Oddities of No §174 R&D Fix in 2022

I thought Congress would repeal or extend the Tax Cuts and Jobs Act of 2017 delayed change to §174 that changes from expensing R&D (the law since 1954) to capitalizing and amortizing over 5 years (domestic) or 15 years (foreign). After all, a key purpose of the TCJA was to make our tax system more internationally competitive. Providing a more unfavorable rule for R&D expenditures goes in the opposite direction. But it wasn't to be effective until tax years beginning after 12/31/21 (most TCJA changes were effective after 2017). So it was arguably more of a budget gimmick to reach the desired revenue loss target set for the TCJA. But, it was not delayed or repealed - although that might still happen.

Two observations:

1. Is expensing the right tax policy? I think so. Generally, a long-lived asset should be amortized over its useful life. But not all R&D has a life beyond one year and when it does, it is hard to estimate. So, I think economic growth and administrative convenience reach an appropriate result to just expense the R&D when incurred.

2. Capitalizing and expensing over 5 years is too long and sends the wrong message that R&D work in the U.S. is not valued. A recent report from the National Academies of Sciences, Engineering and Medicine entitled Protecting U.S. Technological Advantage notes in the first paragraph in the preface:

"U.S. leadership in technology innovation is central to our nation’s interests, including its security, economic prosperity, and quality of life. Our nation has created a science and technology ecosystem that fosters innovation, risk taking, and the discovery of new ideas that lead to new technologies through robust collaborations across and within academia, industry, and government, and our research and development enterprise has attracted the best and brightest scientists, engineers, and entrepreneurs from around the world. The quality and openness of our research enterprise have been the basis of our global leadership in technological innovation, which has brought enormous advantages to our national interests."

I think most people agree with that. Innovation, high-paying jobs, development of new technologies - are things we want to encourage in the U.S.

What do you think?