Warren slams defense contractors over tax lobbying

WASHINGTON ― Some of the United States’ largest defense contractors are lobbying to restore a tax credit that partially expired last year, drawing fire from Sen. Elizabeth Warren, D-Mass, and Rep. Chris Deluzio, D-Pa.

Warren and Deluzio sent similar letters to four major defense contractors, hammering them over millions of dollars spent lobbying to fully restore a research and development credit Congress enacted in 2017 as part of former President Donald Trump’s sweeping tax cuts.

The four letters, addressed to the CEOs of Lockheed Martin, RTX, Northrop Grumman and General Dynamics, come after House Republicans on the Ways and Means Committee advanced a tax cut package for U.S. businesses in June. A provision in that bill includes the research and experimentation, or R&E, tax credit restoration that the four companies have asked Congress to enact.

“These tax breaks are nothing but corporate handouts,” Warren and Deluzio, who sit on their respective chamber’s Armed Services Committee, wrote to all four CEOs. “A revival of the R&E 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 that is the best use of taxpayer dollars.”

The 2017 R&E tax cuts allowed companies to immediately deduct their research and development expenses, until last year. A sunset provision in that law kicked in for 2022, requiring companies to spread that deduction out for a minimum of five years or longer in an amortization period.

Defense contractors and industry groups lobbied Congress to undo this amortization period, but Republicans and Democrats failed to secure a deal amid broader tax policy disputes.

While Warren’s letters focus on the House Republican proposal, many of her fellow Senate Democrats also have lined up behind efforts to fully restore the R&E credit.

Sens. Maggie Hassan, D-N.H., and Todd Young, R-Ind., introduced legislation to do so in March with the backing of 18 other senators from the Democratic caucus.

The Aerospace Industries Association, of which Northrop Grumman and General Dynamics are members, praised the Senate bill in a March statement as an “opportunity to reverse course on the harmful R&D tax policy.”

“American companies have always played a leading role in advancing the technology we need to maintain our competitive edge, especially in the defense sector,” said Eric Fanning, the association’s president. “We must use every tool at our disposal to encourage R&D and remain competitive on the global stage.”

Lobbying

Both the House and Senate bill would restore immediate R&E tax deductions. But the House Republican bill would allow the defense contractors and other businesses to retroactively claim the credit for 2022 as well.

The letters referenced earnings calls from the companies where executives projected the retroactive tax credit for 2022 would allow RTX — until recently known as Raytheon Technologies — to recoup $2 billion; Northrop Grumman to reclaim $1 billion; and Lockheed Martin to take back $500 million. General Dynamics has not disclosed how much it could reclaim under the retroactive exemption.

They also noted that all four companies already paid “well below the 21% corporate tax rate” in 2022. The lawmakers also catalogued the amount of money all four defense contractors spent lobbying to fully restore the R&E credit between January and March this year.

Warren and Deluzio wrote that Northrop Grumman spent a “whopping” $4.3 million lobbying on the tax credit, followed by Lockheed Martin at $3.5 million, RTX at $3.1 million and General Dynamics at $3 million.

The four companies have continued their lobbying since March, according to a Defense News review of lobbying disclosure forms between April and June this year.

The forms indicate that Northrop Grumman paid $60,000 for Covington & Burling LLP to lobby on the House and Senate bills and $40,000 for the Duberstein Group to lobby Congress “on issues related to tax.” RTX also paid $60,000 apiece to BGR Government Affairs and Brownstein Hyatt Farber Schreck LLP to lobby for the tax credit extension.

For its part, General Dynamics paid $37,500 to Meltsner Strategies LLC to lobby on the legislation. It also paid another $50,000 to the Ervin Graves Strategy Group LLC to lobby Congress on an “R&D tax credits effort to get an amendment into the omnibus” spending bill.

Warren and Deluzio have asked each company to reply to a series of questions, including how much they’ve spent on lobbying for the tax credit, how much the deduction has saved them between 2018 and 2021, and how much they expect to save through 2025 if it’s fully restored.

They also want to know how much any retroactive credit for 2022 would go toward research and development versus how it would affect each company’s outlook for stock buybacks.