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Interview with Rick Lazio , Former U.S. Congressman; alliantgroup Senior Vice President
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The Senate’s failure to pass a $78 billion bill that included tax breaks for businesses and low-income families could have dire effects for small business research and development, Accounting Today reported.
The bill would have revived several tax breaks, including Internal Revenue Code Section 174, which allowed businesses to expense current-year costs related to R&D. That provision was eliminated by the Tax Cuts and Jobs Act of 2017. The bill would also have enacted a scaled-back version of the enhanced Child Tax Credit.
“This latest blow on R&D amortization could make companies vastly reduce their research budgets right at a time when the U.S. needs increased innovation to remain competitive on the world stage,” said former Rep. Rick Lazio (R-N.Y.), who is now senior vice president at business consultancy Alliantgroup, in an interview with Accounting Today.
As Lazio told Accounting Today, Congressional Republicans originally intended for the provision eliminating Section 174 to be a temporary offset so that they could make the corporate tax rate lower: “They settled on this relatively obscure provision that no one envisioned surviving,” Lazio said. “They thought it would allow them to get the bill through and could be changed immediately afterward. It was just a short-term fix, but elections happen, politics happen, and the rest is history. When it was adopted in 2016, it was delayed for two years to give them a chance to repeal, but elections complicated the politics and over time, when the Democrats regained power their perception was that since it happened under the Republicans’ watch— You broke it, you fix it.'”
The $78 billion bill did not pass because Republicans and Democrats couldn’t agree over the Child Tax Credit.
“This is what caused the bill to not be passed in the Senate up to this point,” said Lazio. “The House went through a similar process, but some of the most conservative Republicans and most progressive Democrats passed it overwhelmingly earlier this year. When it went to the Senate, Republicans insisted on changes in the Child Tax Credit as a condition. Republicans didn’t feel they could compromise, so when it came up for a vote it fell short of the 60 it needed to block a filibuster.”
Lazio said that the absence of the ability to currently expense R&D costs places extreme hardships on small and midsize businesses.
“Many saw their tax liability grow by a factor of four or five times, and in some cases more than that,” he said. “It affects some of the most innovative businesses in the country, creating a disincentive on them continuing to innovate.”
One of his firm’s clients, SX Industries, had a 74 percent tax increase in 2022, and the company is considering stopping its military development projects since it can no longer afford the increase, he said. Another client, Agile Six Applications, which builds “digital experiences” for a number of government agencies, had a total tax liability that more than doubled; rather than a total tax bill of $2.2 million, it will be expected to pay $5.05 million.
“The irony is that American businesses are falling further behind international competitors in new areas such as [artificial intelligence] and chip technology,” said Lazio. “In fact, the policymakers have created a perverse disincentive by allowing this provision that was never intended to be permanent to affect small and medium businesses. The history of innovation is that big players acquire companies that have developed the technology they need. They innovate by buying smaller companies that have developed it.”
“If smaller companies are disincentivized or discouraged, then American businesses won’t have access to their technology and they become vulnerable to international competitors where the governments have encouraged R&D.“
He added that, in the absence of any legislative action, many smaller companies may not survive.
Featured Leadership
Rick Lazio is a former U.S. Representative from New York serving in Congress from 1993-2001. While there, he became a strong advocate for small businesses by sponsoring the successful Small Business Tax Fairness Act. Rick is committed to his continued interest and support of small to mid-sized businesses by brokering his insight and experience in the public and private sectors to provide strong incentives for job growth. This interest has extended into his civic and philanthropic work in New York with the Committee for Economic Development and the Association for a better New York.
Dhaval Jadav is Chief Executive Officer of alliantgroup, America’s leading consulting and management engineering firm, which helps American businesses overcome the challenges of today to prepare them for the world of the 22nd Century and beyond. Jadav co-founded the firm in 2002 to be unlike any other consultancy, with an emphasis on partnerships with clients to not only identify but also implement quantifiable solutions to their most critical concerns.
