How Does the GOP Bill Affect the R&D Tax Credit?

In last-minute changes to the Senate bill, the GOP unintentionally reinstated the corporate Alternative Minimum Tax (AMT) at the same rate as the corporate income tax rate of 20 percent. The AMT eliminates most deductions in order to prevent the wealthy from artificially reducing their tax bill; corporations pay whichever is higher out of the two rates. This change to the bill would have resulted in many more businesses paying the AMT and losing tax breaks such as the R&D Tax Credit. While the Senate argued the need to preserve the corporate AMT to pay for other tax cuts, the House repealed it.

As a result of complaints by several industries, including renewable energy and Silicon Valley’s tech companies, the final GOP bill eliminated the AMT. CEO’s argued that the change would result in less investment in research and development and the building of new plants. 

While the R&D tax credit will not be affected by the AMT, there will be a change in terms of R&D deductions, which were previously available immediately, in a single year. Companies must now write off their R&D investments over a period of five years or more.

Starting from January 1st, 2018, the corporate tax rate fell to 21 percent, the largest one-time rate cut in US history. This will total around $1 trillion in tax cuts over the next decade. The GOP has maintained that the bill will encourage strong economic growth, however many economists believe this growth will be short lived.

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