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Defense Companies Wary Over Impact of 2017 Tax Law on Research Investments

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Defense industry executives say their companies could be hit with billions of dollars in taxes and reduce spending on research and development if Congress fails to delay or repeal a 2017 law that would tax R&D expenses, Nextgov reported Sunday.

The 2017 Tax Cuts and Jobs Act directs companies to claim R&D expenses on their taxes and spread their annual claims over five years starting in 2021.

“The requirement for companies to capitalize and amortize R&D expenses amounts to a significant tax increase, which will negatively impact innovation,” the National Defense Industrial Association said of the law in its 2022 industry assessment report.

Raytheon Technologies said its R&D spending reached about $11 billion in 2021 and that it would have to claim approximately $2 billion on its taxes in April. 

“We firmly believe, and everybody we talk to in Washington understands, it is bad public policy,” Greg Hayes, CEO of Raytheon Technologies, said of the law during a conference Wednesday. “It discourages investment in innovation.” 

Northrop Grumman expects to incur a tax hit of about $1 billion, followed by L3Harris Technologies at $650 million, Lockheed Martin at $500 million and General Dynamics and Textron at $300 million each.

“They’re still gonna invest in R&D. We’re just losing that ability to incentivize more,” said Eric Fanning, CEO of the Aerospace Industries Association and a previous Wash100 Award winner.

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