A change may be on the horizon for the United States’ research and development policy. A bipartisan conference committee is working to reconcile two bills that aim to increase support for research and development with a special focus on semiconductor production. However, with the August recess rapidly approaching and the committee’s progress already behind schedule, businesses may have longer to wait before the support is finalized. Let’s take a closer look at these bills, and what they could mean for your research and development department…
The United States Innovation and Competition Act (USICA)
The United States Innovation and Competition Act (USICA), formerly known as the Endless Frontier Act, passed in the Senate on June 6, 2021. Led by Senators Chuck Schumer and Todd Young, the Act aims to increase American competitiveness with China in the technological sphere. It proposes increased funding for the National Science Foundation and establishes a new Directorate for Technology & Innovation, in addition to increasing the budget for the Department of Energy (DOE) and the Defense Advanced Research Projects Agency (DARPA).
It also establishes 10 technology focus areas:
- Artificial intelligence, machine learning, autonomy, and related advances
- High-performance computing, semiconductors, and advanced computer hardware and software
- Quantum information science and technology
- Robotics, automation, and advanced manufacturing
- Natural and anthropogenic disaster prevention or mitigation
- Advanced communications technology and immersive technology
- Biotechnology, medical technology, genomics, and synthetic biology
- Data storage, data management, distributed ledger technologies, and cybersecurity, including biometrics
- Advanced energy, industrial efficiency technologies including batteries, and advanced nuclear technologies including for the purposes of electric generation
- Advanced materials science, including composites and 2D materials
The America COMPETES Act
The America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (America COMPETES) Act was created in response to the Senate’s USICA and passed in the House of Representatives on February 4, 2022. Sponsored by Representative Eddie Bernice Johnson, the America COMPETES Act also aims to help America compete with China in technological advancements through increased funding for research and development.
The bill authorizes funding for STEM education programs, enhances research security, and raises the budget for the National Science Foundation. It also creates short-term Pell Grants and includes immigration provisions for international scholars.
How Do the Two Acts Compare?
The USICA and America COMPETES Act focus on bolstering technological competition with China, primarily through research and development funding. They both include the Creating Helpful Incentives to Produce Semiconductors (CHIPS) For America Fund. The CHIPS For America Fund prioritizes domestic semiconductor production and sets aside $52 billion for semiconductor manufacturing, research and development, and supply chain security.
The two bills are also both omnibus bills — meaning that they combine several measures or multiple smaller bills together, and all of the measures are decided as one with a single vote in each house.
The primary differences between the bills lie not in the goals but in the details— which agencies and departments receive money, how to protect U.S.-funded research from rival countries, how to handle visas for foreign experts, and how the funding is allocated. Additionally, since they are both omnibus bills, some of the smaller provisions packaged inside have become sticking points between the two.
Reconciliation Conference Committee
To resolve the differences between the USICA and America COMPETES Act, Congress formed a reconciliation conference committee. The Senate voted on priorities for the upcoming committee on May 4, 2022 and passed a motion to support expanding research and development tax credits for small businesses and to allow businesses to fully deduct R&D expenses, a practice that was recently changed under the Tax Cuts and Jobs Act (TCJA).
The conference held their first meeting on May 12, 2022. However, the negotiations have been much slower than initially expected. Democratic leaders hope to pass a compromise bill by the end of July, before the August break, but tension inside the committee remains as recently as late June.
What Does This Mean for Research and Development?
These two bills show that despite the stalled progress, research and development support is a key issue for both parties. While they may not agree on other details, Democrats and Republicans share a goal of increasing competitiveness with China politically and economically, and they both intend to increase research and development funding and support to meet that goal.
When Committee Chair Eddie Bernice Johnson introduced the America COMPETES Act, she stated, “Our competitiveness with China and other nations drives much of the national discourse around innovation because our economic and national security depend on our leadership in science and technology. However, competitiveness with China will not be possible if we do not unleash our nation’s STEM talent on the full range of challenges we face. Surely the COVID-19 pandemic has made that clear to all of us. And the fact is, researchers and students are inspired by finding solutions, whether they be to scientific or societal challenges. In this bill, we seek to inspire.”
Senator Todd Young emphasized the same point at the reconciliation conference committee, saying, “We cannot compete with China without robust domestic R&D. A company investing $100 in R&D in China this year would get a $200 deduction. In America? That company investing $100 would only get to deduct $10 this year. We must not lose out on innovation and production to China.”
Consult National Tax Group
No matter the results of the reconciliation conference committee, you will need to provide in-depth, specialized documentation of your work to receive any government support. Make sure you receive the full value of your research and development projects by consulting with a National Tax Group expert. Our staff has over 20 years of collective experience in complex tax incentive programs. Research and development tax documentation is one of our specialties. Contact us today to get started or receive a free assessment to find out if you qualify for any other lucrative tax benefits. We look forward to working with you!