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AI Policy and R&D Tax Credits: Empowering Businesses

Todd Young, U.S. Senator (R-Indiana)
Todd Young, U.S. Senator (R-Indiana)



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Senator Todd Young (00:00)

We all hear quite a bit about the importance of incentivizing more people to start their own businesses, to grow those businesses, especially in high-tech areas, areas of potential really high growth, there are benefits to national security and economic competitiveness and just sort of like improve. It helps us as a society present all kinds of consumer benefit to people. So how do you do this? Well, the market takes care of much of it, but almost every government, major government around the world, offers some sort of incentive for R&D because we find that as firms and individuals, we under-invest in R&D because there's spillover benefits that benefit all of us. So, there is a real, very strong argument, which we've always bought into in the modern era, that we need to invest more in R&D and do that through our tax code incentivize.


Announcer (00:59)

Welcome to Paychex THRIVE, a Business Podcast where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks.


Gene Marks (01:15)

Hey, everybody, and welcome back to another episode of the Paychex THRIVE podcast. My name is Gene Marks. Thank you so much for joining us. We have a very special guest this week. It's Senator Todd Young. Senator Young is a Republican from the great state of Indiana. Senator Young, thank you so much for joining us today.


Senator Todd Young (01:32)

Thanks for having me, Gene. I'm really excited to be with you.


Gene Marks (01:35)

Yep. I'm glad that you're here. On this podcast we do speak to a lot of House members and senators and politicians, legislators that are doing things that impact our audience, which are mostly small and mid-sized business owners. And Senator Young, you are very, very active. So, let's start with AI, which is a big issue. And I just as a, just a little prelude, I mean, I do a lot of speaking to a lot of industry associations around the country, and there is a huge appetite of business owners that want to learn more about AI. But I got to tell you something. As much as they want to learn about AI and they know it's going to impact their business, people are concerned about the security and the risk. So, tell me about your involvement with the Senate's AI insight forums. Tell me a little bit about your thoughts on AI and what kind of legislation you think we might be looking at in the future that hopefully can protect us a little bit from the downside of this technology.


Senator Todd Young (02:34)

Well, Gene, I know that people are at once excited and certainly curious about this technology called artificial intelligence, but they're also concerned about some of the risks and maybe some of the downsides associated with, with it. Our objective in learning more about the technology is to see how we can mitigate some of the potential risks associated with its adoption and deployment, but still harness, if not all the upside, the vast majority of the upside potential. I often am asked about these risks, and we dive right in. And it's important that we discuss them, but it's also important that we remember we have the ability to potentially, you know, eradicate diseases like Alzheimer's and cancer within a decade or coming decades. We have the ability to give every child a personal tutor. We have the ability to clean up the environment, become a lot more productive, all sorts of things. But at the same time, in the process of that, we have to manage that these technologies can get in the hands of the wrong people. We could have maybe our personal information stolen, which would be very relevant to a lot of your listening audience. We have the potential that even worse, people, people who want to use this to harm the bodies or property of others, can harness the technology. So, there are some strategies that we're trying to sort of adopt to deal with these risks, but we continue to learn a lot about them. I've been working with, as you allude to, a few senators, Chuck Schumer, Mike Rounds, Martin Heinrich, so two Republicans, two Democrats, and we've pulled together some of the world's best minds, many of whom your audience would recognize, people like Mark Zuckerberg and Eric Schmidt, many others, to offer their thoughts on the technology. And one of the things we've learned is the vast majority of concerns people have. There are already laws. There are already laws associated with these risks. So, there are laws against stealing data. They're laws against harming individuals, against biasing technology, against racial or ethnic groups. So, the challenge here is to make sure that those laws fit an AI-enabled world. And so there will be some congressional involvement in that space, but more importantly, oversight of these agencies like the SEC, like, you know, the Department of Treasury and many others, to make sure they're getting it right in terms of adapting existing laws and standards to this technological environment by changing their rules. And first, members of Congress, though, have to understand what the heck is going on. And so, we feel like we've done a lot of that over the last year, and so now we're ready to legislate.


Gene Marks (05:37)

I mean, please don't say this wrong way. Do you feel qualified to do this? I mean, this is really super technical stuff, you know? And, I mean, I don't know how I would feel sitting there and you're asking for the opinions from a Zuckerberg or an Eric Schmidt or Sam Altman. I mean, these are like really super smart dudes that their whole life is involved in AI, and yours isn't, you know, I mean.


Senator Todd Young (06:02)

It's a really fair question. And I mean, I think I would not demonstrate the requisite humility if I didn't concede that at least when I began this effort, this all seemed pretty daunting and ethereal and like, how am I ever going to get enough understanding of the technology to be able to regulate it? But you start to break the challenge into discrete little pieces, and you get there. You get there. You work with the world's best minds, you have countless people checker work, which is never a problem in Congress. And we've been doing this for a lot of years as well. So, I mean, we've certainly not played a perfect game in regulating technology like trains and automobiles and semiconductors and on and on. But, so I'm not an expert in any of those fields, but Congress has long played a regulatory role there. So, we're applying the same model to this. But I would argue this could potentially be a lot more transformative than even some of the earlier waves of innovation. So, it's very important that we get this right. This is a general-purpose technology, like, say, electricity, maybe like the internet, like biology. And so, it is expected to really potentially transform every realm of our life.


Gene Marks (07:24)

You look at the, you know, the developers of AI technology, the people that are developing these large language models. I was just looking at a report from, I think it was Gartner the other day that the U.S. just dominates that field. You know, I mean, as a technology industry, I mean, no one, not even China, is anywhere, is anywhere close to us, but obviously it needs some oversight. You introduced an act called the Future of AI Innovation Act, and I'm wondering if you can explain a little bit what that is.


Senator Todd Young (07:54)

Yeah, so I'll start with this. This is an example of how I think it's really important for us to bring humility to this regulatory process since we're just learning about how AI can change the world and many new advancements are just hitting us. So what Future of AI Act proposes doing is establishing within the National Institute for Standards and Technology, a safety institute, a safety institute that will work with the private sector, work with academics, and other stakeholders to develop voluntary standards, voluntary standards to allow third parties to assess the effectiveness of technology, to assess whether or not they are fit for purpose, and to assess whether or not they present any kind of danger to people or our interests. So that's, it's an important, very first step to broader self-regulation, maybe even government regulation. But that's, in short, with this technology, what this effort does, what we don't want to do is frankly what I think the Europeans have done and what other countries may be poised to do, and that's to overshoot their regulation because of fears that haven't yet manifested. And if we do that, you mentioned China. I fear that we're currently out ahead. I fear that we could become less competitive and then lose this vital industry to another country.


Gene Marks (09:32)

Sure, fair enough. One of the things that sets this country apart, I've found, is that you mentioned our European, you know, your colleagues and partners, they do tend to lean more towards over-regulation, in particular letting government take that sort of lead role. And obviously that happens here a lot. But there are so many industries that regulate themselves and the government lets them do that. I mean, even financial statement, I'm talking as an accountant here, you know, even financial statements, when a public company issues them, the SEC requires that they're audited and they get audited by, you know, accountants, you know, you know, big accounting firms. The government is not auditing them unless there's a problem. Do you ever see that as a potential avenue to regulate AI for there to be more private oversight, more auditing? I'm not saying the big four accounting firms like Deloitte or Price Waterhouse, maybe they would perform these audits. But do you see that as potentially the future, or do you think AI is going to require just straight out more government auditing to make sure that people are in compliance?


Senator Todd Young (10:40)

Well, you know, I do see that as an important part of the future. I think probably for most purposes, AI can be regulated by the companies that help develop these. Working with other third parties, come up with industry standards, but there are certain applications and certain processing speeds that will require a higher level of regulatory sort of scrutiny. I think our courts will also be very helpful here, though. I mean, we have these concepts like strict liability. So, for certain purposes, under existing law, longstanding law, you are strictly liable. That is, if your swimming pool results in fatalities, then there is a determination by the court that, hey, listen, no excuses. You're just going to be liable. So, I think a concept like that could be applied to this by the courts as well. But again, you know, it's our job to at least come up with an initial regulatory standard here through the Safety Institute. And then we'll be in consultation with the experts and they'll help us know if we need to take kind of bolder action to mitigate risks. Yeah.


Gene Marks (12:05)

All right, before we shift from AI, have you played with any AI products, chat, GPT or anything like it?


Senator Todd Young (12:11)

Am I what? I'm sorry.


Gene Marks (12:12)

Have you played. Have you played with any of those products? Like, have you been on chat?


Senator Todd Young (12:15)

Yeah, quite a bit. In fact, I was having dinner with a handful of my colleagues recently and one of them, who is not very familiar with the technology, was, was talking about a speech that they're going to be giving soon and they joked around, could this technology produces speech for me? And within, you know, I typed in what their speech was about into chat GPT, and within less than a second, it produced a really flowing, beautiful, eloquent speech and their jaw dropped. So that was just the most recent example. But I actually encourage my staff, if they want to use it for internal purposes, they can, but I make very clear they will own any work product that they hand to me or anyone else associated with that. So, I'm getting more acquainted with it. It's really exciting what it can be.


Gene Marks (13:11)

I think it's exciting, too. And I also think that it's. Your approach to it actually makes a lot of sense. I have some people that I'm friendly with in the academic world. And so, you can imagine. Imagine you're a professor or even a high school teacher, and you've got chat GPT out there where you've got students that can easily get the answers to essays and term projects just by going on there. But you're right, you make the student, you make the person that's, you know, the person that's responsible, responsible. You know, so they can get the information that they want, wherever, but they still got to own it and understand it and be able to answer questions about it. And that's probably the middle ground, but it's powerful.


Senator Todd Young (13:48)

It really is powerful. One could imagine, you know, just as you would in a math class, you don't allow some of your students to use a calculator some days, right? But maybe in the future you will allow, for certain purposes, your students to use the latest in AI technology. So, what then will be expected of you? Like, what level of abstraction are we going to free up our students to think of? And so it'll change the whole nature of learning as well. And we just can't predict how this stuff's going to go. But it's not something to be feared. I think fear kind of can paralyze us and prevent us from taking really constructive action, fully benefiting from the technology as well.


Gene Marks (14:34)

I agree. We shouldn't be afraid of it, and it can enhance our lives. And listen, we're going to have some tough questions to answer, like what really is important to know or what can we delegate that knowledge to something? If you and I were driving around in a car in 1920, we would probably need to know a lot about how a car works because those things broke down all the time. But nowadays, honestly, I don't even know how a car works. I'm still driving around in one all the time.


Senator Todd Young (14:58)

Absolutely. I will say this because of your audience, I think it's really important. I mean, this technology, let's take seriously some of the more aggressive predictions about the productivity improvements and innovation potential that could be realized. I mean, it could disrupt, not blue-collar work, which traditionally has been what automation does, but it could really assume the responsibilities that normally a trained attorney would have or a CPA. And so, this will require not just empathy with those impacted, but we're going to have to get a lot better and come up with new devices for training and retraining and all sorts of other things. So, we do need to prepare for that individually as well as a society.


Gene Marks (15:48)

Yeah, I have confidence that humans will develop and find other things to take up their time. I don't see many blacksmiths around nowadays. There used to be people that would, you know, bang on windows in the morning to wake people up, you know, because there was no alarm clock. So, jobs get replaced by technology. And I think people, they, like you said, you know, they go to the next level. You know, they will, they will develop. Okay, let's pivot a little bit. Let's talk some taxes. Okay. Without losing our audience here. Obviously, it's a huge topic for our audience, which are business owners. Talk to me about the R&D tax credit. You have a new bill on that. You're passionate about it. Explain to us what that bill is and what your thoughts are on the R&D tax credit.


Senator Todd Young (16:32)

Yeah. So, this is very important. We all hear quite a bit about the importance of incentivizing more people to start their own businesses, to grow those businesses, especially in high-tech areas, areas of potential really high growth, there are benefits to national security and economic competitiveness and just sort of like it helps us as a society to present all kinds of consumer benefit to people. So how do you do this? Well, the market takes care of much of it, but almost every government, major government around the world offers some sort of incentive for R&D because we find that as firms and individuals, we under-invest in R&D because there are spillover benefits that benefit all of us. So there, there is a real, very strong argument which we've always bought into in the modern era, that we need to invest more in R&D and do that through our tax code, incentivize it. So, we allow a deduction from your taxes for R&D expenses, and then for pre-profitable high-growth potential companies, you have to offer a credit to provide that extra incentive. The provisions in the R&D deduction have expired. I propose that we renew them. And then I want to add this credit feature onto it, because modern economic development is not about announcing new factories in the main, it's about getting more people to create more of these high-growth potential small businesses.


Gene Marks (18:09)

I need to interrupt you. I need to interrupt you just for a moment, Senator, with apologies. You're absolutely right. If we're our audience, I just want to make clear, and again, it's me as a CPA talking. So you're right. There's a deduction you can take for R&D expenses, and there's a credit that you can take against the taxes that you owe, also related to R&D. And like you just said that deduction for R&D expenses that expired, which basically means you're allowed to take a first-year deduction for R&D. So, like write them off all in the first year. Now you're not able to do that. You've got to now amortize those costs over a certain period of time, and that takes away a lot of potential tax savings. That's a separate issue. And we're going to talk about a little bit about that just soon because of all the things that are expiring after 2025. But that's on the deduction side. So, you want to, obviously, I know that you support continuing this first-year deduction for R&D, but now, again, just to make sure our audience are following along, you want to add a credit component to this as well? Correct. Okay, carry on. And I apologize.


Senator Todd Young (19:13)

You're not yet profitable, as most new startups are not, especially in the early years. We still want to incentivize you to lower the hurdle rate, as it were, to start that business. And the way we can incentivize someone to found a business is to say that when you're unprofitable, we're actually going to give you a credit. So, there will be financial, direct financial benefits to you to starting a high growth potential R&D intensive business, because we know that, disproportionately, these are the businesses that, if they make it after the first five years or so, can grow at enormous rates and create all sorts of innovation that benefit the broader society. So, we're not the only country that does this. In fact, there are a lot of larger enterprises that will shop around for the most fertile environment to do their R&D. Eli Lilly and company is an Indianapolis-based pharmaceutical developer, for example, and they do R&D in different countries, in part based on the tax treatment. Let me tell you about China's tax provisions. If you invest $100 in a China-based business and do R&D there, you get a $200 tax benefit. So, this is a super deduction of R&D. Obviously, you get basically nothing in this country right now because our provisions have expired. You know, it's great. I support efforts like the CHIPS Act, which I helped drive through Congress because I think we need to have a certain threshold of innovative potential in this country. But let's not spend all this money in public investment on one hand but starve the private sector of what's needed to really compete against our competitors in high-growth potential areas of science and technology.


Gene Marks (21:29)

You talk about science and technology, and, again, you were right that that is really one of this country's biggest strengths. You'd be surprised, though, at how many manufacturers and other sort of non-tech clients of mine have taken advantage of the R&D tax credit in the past because they're developing new products or new services, and they have materials and they're testing or they're doing demos or whatever, that's okay, too, right? I mean, there's. Yeah, we don't want to discourage them, correct?


Senator Todd Young (21:58)

No. I'm so glad you brought that up, Gene. In fact, you know, I represent the most manufacturing-intensive state in the country. Indiana, on a per capita basis, adds more manufacturing value than any other state. And for R&D, for my manufacturers, part of, say, the auto supply chain, that means new manufacturing processes, iterative improvements in the process, and they, too, can benefit from the R&D provisions in the code in order to come up with those sorts of innovations.


Gene Marks (22:36)

Yeah. Makes complete sense. And again, it's funny that you bring about bringing on new manufacturing process. I have a specific client that did that exact thing, and even within the existing R&D tax credit, were able to get credit for expenses that they spent with consultants, for example, to help them design these new processes and figure out ways to do things better. So I just want our audience to know, as well, that the R&D tax credit, sometimes there's this, you know, people get, there's this myth that it's only for a software development company or a pharmaceutical company, but if you're innovating and you're developing new products and services, that's the kind of thing that's available to companies just like that, right?


Senator Todd Young (23:14)

That's right. I mean, you know, to put it pointedly, it doesn't have to earn the sanction of Wired magazine to be eligible. Right. I mean, this could be a gritty, dusty, more traditional industry, but people are doing unglamorous yet very important, innovative things within those enterprises on a daily basis. We want to incentivize that as well because, of course, it makes workers more productive and drives down costs of goods and services. So, that's exactly right, Gene.


Gene Marks (23:48)

With apologies, when does your term end? Are you up for reelection this year?


Senator Todd Young (23:55)

No, I was reelected in 2022. So, I've got a longer leash to go out and just, frankly, do the day job. Less politics, a lot more legislative work, which is what I enjoy.


Gene Marks (24:09)

That is exactly the reason why the Senate is, you know, is the Senate. It gives you time, a six-year term, to actually focus on stuff instead of constantly having to go up for reelection. And reason why I bring that up is because, so you're here, you're not, you've got the time to show some gravitas and evaluate issues. And taxes are going, it's an election-year issue this year, but it's going to be way more than that because so many taxes from the Tax Reform Act back in 2017 are expiring at the end of 2025. And I don't feel that a lot of small and mid-sized businesses that have really been benefiting from the provisions of that act really understand the implications, what will happen. It's not just individual rates going up, corporate rates going up as well. The small business tax deduction, that's the qualified business income deduction that would go away if nothing happens. It's an enormous, I think it's an enormous election year issue because it depends on which way the election goes as to what the fate of a lot of those provisions will be. Give us your thoughts on the importance of this. Speak to me a little bit about that.


Senator Todd Young (25:24)

Well, listen, everything that we ought to be incentivizing through the tax code, growth savings, investment, competitiveness, is dependent on how this election goes because those different values are manifested in the tax cut, in the tax code. And with the Tax Cut and Jobs Act, much of that legislation expiring as you indicate. We're going to have to revisit all these various provisions so whomever wins will have more leverage in negotiating these provisions. Now, with that said, I think that both parties are agreeing on certain things, and it's not all pretty. Right. So, they're agreeing that we don't need to make really hard decisions about our spending patterns. There's been no discussion about entitlements to the extent we've had discussion about Social Security, Medicare and Medicaid and their unsustainability as currently structured. It's been about not touching them at all. So that dynamic will also inform, I hope, our tax conversation, which means we can be less generous. Right? And so, it's really unfortunate, but that alone will lead to some changes in the tax code that weren't made during the Trump first Trump years when we when, we passed the Tax Cuts and Job Act.


Gene Marks (27:02)

That’s going to be the biggest argument against extending a lot of these tax provisions is how are they going to be paid for. And we're facing historical levels of deficits and, you know, in debt. So, I guess as a businessperson, I guess I would ask you that question, Senator Young, saying, okay, we know as business owners that these tax incentives are good for our businesses, and we do support them. But, you know, when I speak to my clients and other business owners, we also understand the fiscal responsibilities that our government has and everything can't be a free lunch. What would you say to that when it comes to cuts in the federal, I mean, if we reduce taxes, you could make up for some of it by more growth. We can agree on that. But obviously, cuts have to come from somewhere. And I'm curious, and you can say this now because you're not up for reelection this year, you can say, what would you genuinely and legitimately say, okay, these are the areas that would really need to be looked at to afford these tax cuts?


Senator Todd Young (28:03)

Well, listen, Gene, this is going to be highly unsatisfying. Your question is completely fair. Yeah it does depend, because here's what I need to do. I need to figure out which provisions are really effective and which ones have been less effective and their stated aims. Right. So, let's start there. Let's also realize there is a dynamic dimension to these tax provisions. So, some lead to all kinds of growth, others really, it's questionable how much of a growth dimension there is to preserving. So, we're going to have to do a better job of teasing all of that out. So, all the things that, frankly, we should have done in the past in tax reform efforts and things that many of us have attempted to do, we're going to have to get a lot more clarity on that, which is why I'm already preparing for this tax reform effort, developing a handful of people that I can really depend on to crunch numbers and guide me through the process. There will be some popular things that we're not going to either be able to retain or retain to the extent that most of us would like to. Maybe it's marginal rates, maybe it's, you know, provisions that we've all come to depend on. But this could be a forcing mechanism to require members of Congress to actually come up with a plan to preserve Social Security, Medicare, Medicaid, and we just haven't done that. So, what I don't want to have happen is under existing law, you'd have a meat cleaver go to Social Security, for example, because it's insolvent in just a few years. So, between tax reform and that provision, this should be a forcing mechanism for us to have hard conversations with our constituents.


Gene Marks (30:08)

What is your temperature in the Senate? We don't have to speak about the House. But do you feel that there is a decent chance of some bipartisan agreement on extending some of these tax provisions and having continuing tax reform, or do you see this playing out as just another fight along party lines?


Senator Todd Young (30:29)

Well, I think in the end we will have a bipartisan agreement. I will say that there's been this sort of smaller tax reform package that was passed out of the U.S. House with very sizable Republican and Democratic support, and we have not been able to get it passed yet in the Senate. So that doesn't bode well for next year. There are some who argue that, well, next year will present a more Republican-friendly environment for Republicans to get more of what they want, not just extension of the R&D provisions and interest deductibility and so forth, but, but even more. But, you know, frankly, I haven't been in public life really long, but certainly long enough to have heard that multiple times. Normally, the circumstances get more complicated. So I'm going to be optimistic because that's how I'm feeling today. But there is a risk that Congress is too polarized and that creates great uncertainty, I know for businesspeople about their tax environment and therefore their potential profitability moving forward.


Gene Marks (31:46)

We have been speaking with Senator Todd Young from the great state of Indiana. We have been talking about AI, the senator's moves on his involvement in the AI inside forums in the Senate, and also the Future of AI Innovation Act. We also spoke about the senator's leadership and getting tax reform passed, or at least extended, and hopefully taking more of a leadership role to do something big after 2025 when a lot of these provisions do expire. And senator, we never talked in depth about the CHIPS Act, and I would have loved to have done that. I don't want to take up more of your time as well as your overall thoughts on small business, but maybe we can continue this conversation at another time. I really appreciate your time. It's been very, very educational. Thank you.


Senator Todd Young (32:29)

Gene, you're fantastic. Thanks for having me on.


Gene Marks (32:32)

Really appreciate the conversation, everybody. Thank you so much for watching and listening to this episode of the Paychex THRIVE podcast. Listen. If you need any help or advice or insights into running your business, sign up for a newsletter. It's Again, my name is Gene Marks. Thanks for joining. We'll see you again next week. Take care. Do you have a topic or a guest that you would like to hear on THRIVE? Please let us know. Visit and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR, payroll, benefits, or insurance services, see how Paychex can help. Visit the resource hub at That's W-O-R-X. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive. I'm your host, Gene Marks, and thanks for joining us. Till next time, take care.


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