July 26, 2023

Senator Warren, Representative Deluzio Seek Answers on Republican Plan for Tax Breaks Benefiting Defense Contractors

“This bill would do nothing to stimulate the economy - but it would help your company juice its profits.” Today, Senator Warren to Chair Personnel Subcommittee Hearing Highlighting Failures in Oversight of Defense Contractor Price Gouging

Text of Letters (PDF)

Washington, D.C. – United States Senator Elizabeth Warren (D-Mass) and Representative Chris Deluzio (D-Pa.) sent a letter to the CEOs of several of the largest defense contractors – Raytheon, General Dynamics, Lockheed Martin, and Northrop Grumman – seeking answers on how their companies stand to benefit from Republican efforts to extend and expand giveaways to the wealthy and giant corporations in the Tax Cuts and Jobs Act (TCJA). In particular, these large defense contractors stand to receive billions in retroactive tax breaks under the Republican proposal to extend the research and experimentation (R&E) deduction. 

“A revival of the R&E tax break would add to the billions in savings your companies have already received from the 2017 Trump tax cuts, but it is far from clear if that is the best use of taxpayer dollars,” wrote the lawmakers. “As Congress continues to debate corporate tax reform and government funding levels – including proposals for further corporate tax giveaways, large increases on military spending, and cuts to other critical government programs – we should understand how your company and other massive corporations will be rewarded.”

Four years ago, the $1.9 trillion TCJA created numerous loopholes that helped companies’ and other giant corporations further cut their effective federal income tax rate while bringing in record profits and increasing the national deficit. Now, just a month after their debt limit fight, House Republicans are working to push legislation to extend and expand three of the most expensive corporate tax provisions, including the $155 billion R&E deduction. 

These tax breaks are nothing but corporate handouts. In the case of the R&E deduction, there is no evidence that shifting to a five-year amortization for R&E costs lowers private investment at all. In fact, in 2022, after the R&E break expired, there was a boom in private R&E investment from large corporations,” wrote the lawmakers. “Notably, the R&E deduction shift to five-year amortization was originally included in the TCJA to offset steep cuts to the corporate tax rate in the bill, but some hoped that it would never come into force, and now, thanks to lobbying from companies like yours, House Republicans are trying to reverse the switch.” 

Raytheon, General Dynamics, Lockheed Martin, and Northrop Grumman have all engaged in aggressive lobbying to secure corporate tax breaks, including the R&E deduction. Since the proposed cut is retroactive, Raytheon, Lockheed Martin, and Northrop Grumman have disclosed they would save between $500 million and $2 billion from 2022 alone if the R&E deduction is extended. This windfall would only add to defense contractor’s already record high profits, which they have used to enrich their shareholders at the expense of investments in R&E. 

“Meanwhile, Republicans plan on paying for their bill by gutting the clean energy credits passed through the Inflation Reduction Act,” wrote the lawmakers. “These energy credits will help grow the U.S. economy up to $200 billion and create up to 1.3 million jobs nationally by 2030, mainly by incentivizing investments in research and domestic manufacturing.”

The lawmakers are seeking a response from these CEOs no later than August 9, 2023 to better understand how an extension and expansion of the 2017 Trump tax cuts would benefit their companies. 

On Wednesday, July 26, 2023, Senator Warren will chair a hearing of the Senate Armed Services Subcommittee on Personnel where she will question independent watchdogs and budget experts about wasteful spending and opportunities for cost savings when the Department of Defense (DoD) buys personnel-related goods and services.