RealTime IT News

Congress Urged to Extend R&D Tax Credit

A wide range of technology trade groups called upon Congress today to stop playing politics with the extension of the research and development (R&D) tax credit.

So, too, did the outgoing and incoming chairmen of the Senate Finance Committee.

The tax credit expired 11 months ago, despite repeated promises by both Republicans and Democrats to renew the legislation used annually by as many as 16,000 U.S. companies.

With Congress currently in a lame duck session that could stretch into December, the tech groups hope lawmakers will approve a new extension of the tax credit before the end of the year.

"For the last two years both sides of the aisle have been telling the high-tech industry they support extending the R&D tax credit," Dave McCurdy, president and CEO of the Electronic Industries Alliance (EIA), said at a Capitol Hill press conference.

"Yet time and again we've seen political gamesmanship trump sound public policy."

McCurdy and others at the press conference said the R&D tax credit is an essential incentive for U.S. companies to increase their research in the United States and halt the outflow of R&D dollars to other countries.

Following the example of the United States, which originally passed the R&D tax credit in 1981, America's competitors have also passed tax incentives to draw research to their countries.

According to the AeA, the former American Electronics Association, U.S. companies spent $16.8 billion abroad on research in 1999. By 2003, the figure had grown to $28.8 billion.

"While other countries are aggressively courting R&D with lucrative tax benefits, the U.S. has allowed the R&D tax credit to expire for nearly a year," said AeA President and CEO William Archey. "Congress must add some predictability to the system to help the United States maintain its lead in innovation."

With the R&D tax credit set to expire on Dec. 31 of last year, both the House and Senate included a one-year extension of the credit in their respective tax reconciliation bills but a joint conference committee has been unable to reach agreement on the extension.

"Unfortunately, this year we have seen the R&D tax credit used as a political football that has yet to reach the goal line," said Rhett Dawson, president and CEO of the Information Technology Industry Council.

Senate Finance Committee Charles Grassley (R-Iowa) agreed.

"The R&D tax credit is overwhelmingly popular in the House and the Senate," he said in a statement. "For political reasons, businesses have been in limbo on these provisions. We're talking about almost a year of limbo now."

Sen. Max Baucus (D-Mont.), the likely new chairman of the Finance Committee when Democrats take over the Senate in January, issued his own statement, saying that many U.S. companies have been forced to restate their earnings this year because the R&D tax credit hasn't been renewed.

"This has been a failure of the Congress to support American jobs, to support American business and to support the innovation that keeps America's economy first in the world," Baucus said.

The R&D tax credit has been extended 11 times since it was originally passed 25 years ago. It allows for up to a 20 percent tax credit for qualified R&D expenditures in excess of a calculated base amount.

While Congress has thrown an element of uncertainty to the tax credit with its repeated renewals, other countries are stepping up.

There are 18 countries in the Organization for Economic Coordination and Development (OECD) –- the world's most advanced economies –- that offer tax incentives to conduct R&D on their shores.

Australia allows a 125 percent deduction for R&D expenses, as does the United Kingdom. France offers 50 percent credit. Ireland features a 20 percent R&D tax credit.

Developing countries are also using R&D tax credits to lure business. China, for instance, offers a 150 percent permanent R&D tax credit.

"If Congress is serious about creating more good paying jobs for Americans right here at home, if Congress is serious about keeping American businesses at the forefront of world markets, Congress needs to act," Baucus said. "It's time to stop the annual exercise that threatens the R&D tax credit. It should be made permanent."

President Bush has urged Congress to not only pass the R&D tax extension but to also make it permanent.

"And if you're somebody trying to plan for the next five years, or the next 10 years, which a lot of smart people do, it's difficult to do so if every year you're wondering whether or not the Congress or the president is willing to stand up and support the research and development tax credit," Bush said in April.