This federal tax worked for 80 years. Now it’s harming NC manufacturers | Opinion

North Carolina’s economy runs on innovation, particularly in the manufacturing sector.

Unfortunately, inaction from Congress is threatening thousands of jobs and the sustainability of one of North Carolina’s fastest-growing industries. Our manufacturers spend billions of dollars annually on research to invent new products and make existing products safer, more affordable, and easier to produce right here in North Carolina.

Our state’s modern economy is reflected in Research Triangle Park and the Carolina Core, a network of mega sites surrounded by some of the nation’s best research universities and community colleges. This core is supporting the growth of the state’s automotive industry. Major investments in manufacturing plants in just the past several months are projected to create tens of thousands of jobs.

U.S. manufacturers drive more innovation than any other sector, accounting for nearly 60% of private-sector research and development (R&D). In 2020, manufacturers spent $295.7 billion on R&D. The automotive industry alone invested $23 billion — 5% of all U.S. R&D investment.

Most of that spending is directly on jobs and salaries. Ten percent of all automotive sector jobs are tied directly to R&D.

A simple, but monumental, change in the tax code threatens much of this innovation.

For almost 80 years, businesses could deduct their R&D expenses in the same year they spent them. This structure kept us competitive with most of the developed world. It helped North Carolina become a center of innovation. But a 2017 law, just now taking effect, will now force businesses to spread that deduction over five years.

No other major economic power forces companies to wait five years to deduct R&D expenses. In contrast, China provides a “super deduction” credit of more than 200% in the first year for R&D expenses and generous subsidies to encourage more R&D.

The tax change hurts our economic competitiveness and threatens jobs. It will also force some companies to move R&D overseas. According to the Organization for Economic Cooperation and Development, the U.S. ranks 30th out of 37 advanced world economies for R&D incentives. If this tax deduction is not restored quickly, R&D will shift to Europe, Asia and other North American countries.

This issue is not about corporate tax rates. It is about whether our country is going to support innovation in a way that i competitive with every other major economic power.

The automotive industry’s continued growth in North Carolina depends on R&D — and not just big car companies. Parts manufacturers must keep pace with tremendous change. These mostly small companies must consistently build stronger, lighter, more affordable, and better products. When smaller companies fund 10 R&D jobs in a year but can only deduct the expense for two, it threatens their livelihood. No part of the industry would be spared harm.

There is a broad, bipartisan agreement in Congress that this innovation tax must be fixed. Many legislators recognize the deduction worked for 80 years. But unfortunately, the issue is caught up in Washington politics. Thankfully, committee leadership in the House and Senate recently released a tax plan that would fix this burden on businesses of all sizes.

We encourage the entire North Carolina Congressional delegation to take the lead in fixing this issue this year. North Carolina’s economy can’t wait.