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In a newly released study, EY's Quantitative Economics and Statistics (QUEST) group partnered with the R&D Coalition to estimate the economic impact of the Tax Cuts and Jobs Act (TCJA) provision requiring the amortization of certain research and development (R&D) spending. In particular, the TCJA requires qualifying R&D conducted in the United States to be amortized over five years and other qualifying R&D to be amortized over 15 years. This change applies to qualifying R&D spending beginning in 2022. As a result, the United States will be the only developed country requiring the amortization of R&D expenditures.

Key findings include:

• Reduced R&D spending. Requiring amortization of certain R&D expenditures is estimated to reduce US R&D spending by $4.1 billion annually in the first five years and $10.1 billion annually in the second five years and beyond.
• Reduced jobs. Requiring amortization of certain R&D expenditures is estimated to result in a loss of 23,400 US R&D jobs in each of the first five years and 58,600 in each of the second five years and beyond. Including economic activity related to R&D suppliers and consumer spending, the R&D that would otherwise occur if not for the amortization provision supports 67,700 jobs in each of the first five years and 169,400 in each of the second five years and beyond.
• Reduced labor income. Requiring amortization of certain R&D expenditures is estimated to reduce US R&D-related labor income by $3.3 billion annually in the first five years and $8.2 billion annually in the second five years and beyond. Including economic activity related to suppliers and consumer spending, the R&D that would otherwise occur if not for amortization supports $5.8 billion of labor income in each of the first five years and $14.4 billion of labor income in each of the second five years and beyond.

This policy change is occurring in the context of increased global competition for R&D spending. The United States was one of the first nations to enact a tax incentive for R&D, but other nations have long since followed suit. The OECD reports that, as of 2018, the United States is ranked 26th out of the 36 OECD nations in the value of tax incentives (e.g., immediate deductibility, credit) provided for R&D. Moreover, the value of the US tax incentive for R&D will decline further when the amortization of qualifying R&D expenditures goes into effect in 2022.

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