The new year for both Republicans and Democrats should begin with restoring a robust economy in the face of inflation and fiscal uncertainty.
Ohioans – residents of the state I represented in Congress – and Americans more broadly, can be encouraged by the Republican agreement that Washington should act rapidly to prevent impending tax hikes on American families and businesses. This week, the House overwhelmingly passed the Tax Relief for American Families and Workers Act to extend three very important tax provisions: immediate research and development (R&D) expensing, full capital expensing, and a pro-growth interest deductibility rule. Now, it’s up to the Senate to do their part to make this pro-business bill into law.
These tax credits stem from the Tax Cuts and Jobs Act (TCJA) of 2017, a groundbreaking tax package passed at the urging of the Trump Administration that unbridled the American economy, causing it to shoot to record heights. Unfortunately in order to comply with legislative rules and pass this landmark legislation, important provisions like immediate R&D expensing were designed to be phased out in such a way that, if left in place, would eventually raise the cost of investment and hinder economic output.
To be completely frank, not fixing these changes made to accommodate those legislative rules would damage working families, endanger the U.S. economy, and injure businesses large and small. While Congress gave up on preserving these provisions in 2023, this tax package is exactly what American business owners need before tax season.
Considering that Ohio has always had a large manufacturing presence and that 63 percent of all private-sector R&D goes into this sector, the state’s economy has an outsized stake in whether or not immediate R&D expensing is maintained by the federal government. The National Association of Manufacturers tells us that 16 percent of the total economic output in the state – $114 billion worth in 2021, to be exact – comes from manufacturing, making Ohio is the third largest manufacturing state in America.
Ohio manufacturers are also major job creators for skilled labor, meaning high-paying jobs. For every $1.00 spent on manufacturing, there is a total impact of $2.69 on the overall U.S. economy. With 660,000 manufacturing employees in Ohio in December 2021, if businesses are no longer able to expense huge investments for immediate future growth, workers in Ohio and across America will suffer.
Some experts believe job losses could reach six figures over the course of this decade, due to the loss of R&D expensing alone. Conversely, if immediate R&D and equipment expensing are both restored, job growth in Ohio and throughout the United States can continue to grow. One estimate puts that number at 73,000 new jobs created across the country as a result.
Time is running out to reverse the damage that is currently occurring, and the Senate has a key opportunity to correct course. According to recent data from the Bureau of Economy Analysis, private-sector R&D spending fell by 1.2% in Q3. The average rate of growth in R&D spending ran at 6.6% following the passage of the Trump tax bill, but since immediate R&D expensing was phased out in 2022 it has been on the decline. This year it has been less than 1%. If businesses are no longer innovating, they are no longer hiring.
The House acted in good-faith, and now it’s time for the Senate to follow suit. Republicans understand the need to address this error immediately, and Democrats have made restarting the Child Tax Credit a key bargaining chip in negotiations. Making these critical provisions happen in exchange for this pro-family policy is a fair trade that Ohio’s elected officials in Washington should support. Time is running out to undo the damage already being wrought upon the economy of our great state.
Bob McEwen is a former Member of Congress representing Ohio’s sixth district.
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