Encourage Innovation and Investment in New York: Don’t Decouple
New York stands at a critical crossroads for its economic future. Innovation is the lifeblood of economic growth, and New York has long positioned itself as a leader in fostering research and development. But today, that leadership is at risk.
At a time when federal policy is moving decisively to encourage investment, innovation, and domestic manufacturing, New York’s proposed Executive Budget (REV Parts F and G), along with the Senate and Assembly one-house proposals, move in the opposite direction, making our state less competitive precisely when it matters most.
The Buffalo Niagara Manufacturing Alliance (BMNA) and the Manufacturers Association of the Southern Tier (MAST) have raised serious concerns about the economic impact of this misguided approach.
These proposals would decouple New York’s tax code from key federal pro-investment provisions. That means companies operating in New York could benefit from favorable federal tax treatment while still facing slower cost recovery and higher upfront taxable income at the state level.
In practical terms, the federal government is encouraging innovation and capital investment by allowing businesses to deduct major costs immediately. New York, by contrast, would require those same costs to be spread out over multiple years, raising the cost of investing here, straining cash flow, and discouraging growth.
At the center of this issue is the proposed capitalization of R&D expenses (S.9009-B, Part F), a policy that risks stifling one of the most critical drivers of economic development.
For more than 60 years, businesses have been allowed to immediately expense R&D costs, recognizing the inherently uncertain nature of research. Some projects succeed, others do not, but immediate cost recovery enables companies to continue investing, innovating, and creating jobs.
That stability was disrupted by the Tax Cuts and Jobs Act (TCJA) passed in 2017. The TCJA temporarily required five-year amortization of R&D expenses. The result was immediate and damaging; companies were forced to take on debt, delay hiring, scale back innovation, or shelve projects altogether.
Congress corrected course by restoring immediate expensing for domestic research. But New York’s budget proposal would decouple from these federal provisions—placing our state at a clear disadvantage and making it one of the few requiring amortization.
This is not a theoretical concern. Industries that rely heavily on R&D, including manufacturing, engineering, agriculture, and software would face higher upfront tax burdens, limiting their ability to invest and grow.
The challenge goes beyond R&D. New York would decouple from several key federal provisions that are specifically designed to drive capital investment:
- Immediate expensing of research and experimental expenditures (IRC §174 / §174A)
While federal law allows immediate deduction, New York would require five-year amortization—raising early-stage tax burdens and discouraging innovation. - Immediate expensing of qualified production property (IRC §168(n))
Companies investing in manufacturing facilities could expense costs immediately at the federal level, but in New York those costs would be spread over decades, typically 39 years. - Expanded Section 179 expensing for equipment (IRC §179)
Federal policy allows significantly larger upfront deductions for machinery and equipment. New York would maintain outdated limits, delaying cost recovery. - Interest deductibility (IRC §163(j), including NYC provisions in Part G)
For New York City taxpayers, decoupling would restrict interest deductions tied to capital investment, increasing financing costs.
Decoupling from these policies increase the cost of investing in New York at the exact moment companies are making decisions about where to grow.
Manufacturing investment is long-term and capital-intensive, and it delivers broad economic benefits. When manufacturers invest, they retain jobs, create new high-quality jobs, support local suppliers and small businesses. Manufacturers generate one of the highest multiplier effects of any industry. New York should want those investments made here, not elsewhere.
States are aggressively competing for manufacturing and innovation projects. Site selection decisions are happening right now. Coupling with federal policy keeps New York competitive. Decoupling makes New York more expensive, just as companies are deciding where to invest.
For companies already operating in New York, the question is simple: where should we put our next dollar? Coupling encourages reinvestment here, and decoupling increases the risk those investments go elsewhere.
The stakes are significant. As of 2021, private companies in New York invested nearly $26 billion annually in R&D. These investments are supporting jobs, industries, and communities across the state.
But policies that increase upfront tax burdens threaten that investment. In some cases, businesses could face substantial tax increases which force difficult decisions about hiring, expansion, and project viability.
Small and mid-sized businesses are especially vulnerable. Many lack the financial flexibility to absorb delayed cost recovery, making them more likely to cut back or relocate investment.
The solution is clear: New York should align with federal tax policy and not diverge from it.
Coupling with federal provisions would encourage innovation and capital investment, support manufacturing growth, retain and create high-quality jobs, strengthen local economies, and build a stronger tax base over time. It would also restore consistency and predictability, two essential ingredients for long-term business investment.
New York’s elected leaders have a choice. They can adopt policies that increase costs, discourage investment, and weaken competitiveness or they can align with federal incentives and position New York as a destination for innovation and growth.
If we want to attract and retain manufacturing investment, grow jobs, and secure our economic future, we must send the right signal. Align with federal policy. Support innovation. Invest in New York’s future.
Peter Ahrens is Executive Director of the Buffalo Niagara Manufacturing Alliance. Todd Tranum is Executive Director of the Manufacturers Association of the Southern Tier.
*sponsored content*
