US defence firms say new tax rule threatens R&D

The Aerospace Industries Association (AIA) is urging US lawmakers to repeal a new tax rule that it says would force defence and aerospace companies to slash their research and development budgets.

The AIA is based in the Washington, DC, area. (Getty Images)

US businesses have been allowed since 1954 to immediately deduct R&D expenses from their federal taxes. However, under a change scheduled to begin in 2022, companies will be required to amortise those expenses over five years.

If the change takes effect, “aerospace and defence companies will immediately have billions of dollars less to invest in work that supports domestic scientific and engineering jobs and provides the vital technological edge to our warfighters”, AIA wrote in a 5 May letter to congressional leaders.

The letter is signed by AIA president and CEO Eric Fanning and the leaders of two major defence contractors: Kathy Warden, chairman, CEO, and president of Northrop Grumman, and Mike Petters, president and CEO of Huntington Ingalls Industries. Warden and Petters are also the chairman and vice-chairman, respectively, of AIA’s board of governors.

The letter is addressed to Senate Majority Leader Chuck Schumer, House Speaker Nancy Pelosi, Senate Minority Leader Mitch McConnell, and House Minority Leader Kevin McCarthy.

The R&D change was included in a Trump administration-era 2017 tax overhaul law that also reduced corporate income tax rates from 35% to 21%. The letter notes that legislation to repeal the new R&D requirement has been introduced in both the House and the Senate.