Letter to The Honorable Jason Smith and The Honorable Richard Neal, House Ways and Means Committee (June 12, 2023)

Summary

Letter dated June 12, 2023, to Chairman Jason Smith and Ranking Member Richard Neal of the House Ways and Means Committee, with a signature block naming Roger Williams, Chairman, House Committee on Small Business, and Dan Meuser, Chairman, Subcommittee on Economic Growth, Tax, and Capital Access. It describes a June 6, 2023 hearing entitled "American Ingenuity: Promoting Innovation Through the Tax Code," focused on Research and Development (R&D) expensing and bonus depreciation. The letter states that prior to 2022 businesses could fully expense qualifying R&D expenditures in the year they occurred, that businesses now must capitalize and amortize them over five years, and that bonus depreciation is set to decrease by 20 percent annually until it hits 0 percent in 2027.

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                                          June 12, 2023

The Honorable Jason Smith                               The Honorable Richard Neal
Chairman                                                Ranking Member
House Ways and Means Committee                          House Committee on Ways and Means
1139 Longworth House Office Building                    1129 Longworth House Office Building
Washington, D.C. 20515                                  Washington, D.C. 20515

Dear Chairman Smith and Ranking Member Neal:

On June 6, 2023, the House Committee on Small Business, Subcommittee on Economic Growth,
Tax, and Capital Access held a hearing entitled, “American Ingenuity: Promoting Innovation
Through the Tax Code.” This hearing focused on the impact of changes to the tax code on small
businesses—in particular, the changes to Research and Development (R&D) expensing and
bonus depreciation.

The hearing featured testimony from a small manufacturer, a family farmer, and a tax expert, all
of whom offered diverse perspectives on how R&D expensing and bonus depreciation are
critical to innovation in the United States. Prior to 2022, businesses were able to fully expense
qualifying R&D expenditures in the year in which they occurred. Now businesses must capitalize
and amortize these expenditures over five years. As a result, many small businesses have been
hit with much higher tax bills than they may have anticipated. Bonus depreciation is also set to
decrease by 20 percent annually until it hits 0 percent in 2027.

Ms. Julie Masser Ballay, Vice President and Chief Financial Officer of Sterman Masser Inc., a
family owned and operated farm in Sacramento, Pennsylvania, testified: “As a family business,
the concern always exists that we will not be able to keep pace with larger companies or with
rising costs, while still addressing the needs of our employees. With a tight labor market in our
region, we are always looking for ways to improve the work environment for our employees,
improving safety and efficiency. Innovation allows us to be in a position to compete for
employees and create higher-paying positions.”

Mr. Bill Wydra, the President of Ashland Technologies in Hegins, Pennsylvania testified: “The
proposed tax changes scheduled to go into effect regarding bonus depreciation and research and
development tax credits will add one more significant mark for the negative column as we weigh
these decisions and would most likely put a stop to these for several years or potentially
permanently. Cash flow is always tight for most small businesses and this is particularly true of
manufacturers who are much more capital intensive.”
The Honorable Jason Smith and The Honorable Richard Neal
June 12, 2023
Page 2 of 2


Prior to 2022, China’s R&D tax incentive was 2.7 times more generous than the U.S. and since
then the U.S. has fallen even further behind. To compete on the world stage, we must incentivize
innovation through the tax code and fully utilize the innovative capacity of Main Street America.
Otherwise, we will only continue to fall behind our adversaries in the innovation economy.

Small businesses are the economic engine of the American economy. As the Ways and Means
Committee marks up the most recent economic package, better known as the Build It in America
Act, we hope that these business’s voices will be taken into account.

                                           Sincerely,




Roger Williams                                              Dan Meuser
Chairman                                                    Chairman
House Committee on Small Business                           Subcommittee on Economic Growth,
                                                            Tax, and Capital Access


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