House and Senate leaders have purportedly decided to narrow the scope of negotiations on the innovation bill currently in conference, dimming hopes that lawmakers in the conference committee will restore expensing of research and experimentation (R&E) costs and create a tax credit for semiconductors.
The underlying innovation bill is with a formal conference committee charged with merging the Senate-passed version of the United States Innovation and Competition Act (USICA), with the House-passed bill known as “America COMPETES.” Neither underlying bill currently carries a tax title, but that does not preclude the conference committee from adding one in conference. Nonetheless, Senate Majority Leader Chuck Schumer and Speaker Nancy Pelosi recently discussed setting aside issues on which the two chambers and two parties won’t find consensus—such as tax and trade issues—choosing to instead focus on areas where they can find ultimate, and speedy, agreement.
While there is strong bipartisan support for both restoring R&E expensing and incentives for semiconductor manufacturing, numerous political factors have complicated the outlook of adding these provisions to the innovation bill. The Senate overwhelmingly passed a nonbinding motion to “instruct” lawmakers participating in the conference to include provisions retroactively extending R&E expensing—and also approved a similar motion for semiconductor manufacturing—but there is strong resistance to adding a tax title to an already contentious bill, as it could open up the process for other members to push various tax priorities. Many Democrats also appear reluctant to pass business tax relief while the enhanced child tax credit is stalled, and could push for “social” tax relief that would complicate the process. Schumer and Pelosi’s recent discussions on narrowing the scope of negotiations may preclude a tax title for these exact reasons.
The timeline for completion of the conference committee and final passage of the updated legislation remains uncertain. Negotiators and leadership are now pushing hard to get agreement by the July 4 break to remain hopeful that the ultimate legislation can pass before the August recess. Still, potential additions and revisions to the underlying bills could take weeks—if not months—to resolve.
If the Section 174 R&E fix is not included in the innovation legislation, it still has a good chance of being addressed in a year-end “extenders” bill after the November elections. Businesses should seek to remain apprised of the ongoing conference committee and its underlying negotiations, as significant developments are expected in the near-term.
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