Toward a Sane R&D Tax Credit

Bolstering it and making it permanent has Congressional support, and is up for a vote -- but faces a tough year-end deadline. Losing it would be major for America.

Congress is stuck on about everything, of course. But one bill garnering support from both parties –- even if it faces a tough year-end deadline for a vote -- is the GROWTH Act (the Greater Research Opportunities with Tax Help Act of 2011, or S.1577.) Chief sponsors are Senators Max Baucus (D-Mont.) and Orrin Hatch (R-Utah), with co-sponsors including Maria Cantwell (D-Wash.), Mike Crapo (R-Idaho) and Pat Roberts (R-Kan.) The bill was introduced in September, and referred to the Senate Committee on Finance.

Among its provisions, S. 1577 would amend the Internal Revenue Code to boost the tax credit rate from 14% to 20% of qualified research expenses, and make the credit permanent.

Considering how the unpredictability of a temporary credit makes life difficult for CFOs, a number of business groups support the bill, among them, not surprisingly, the R&D Credit Coalition. The credit’s predictability, and how it makes U.S. companies more globally competitive, “will create a powerful incentive for research jobs to be located in the U.S.,” the Coalition says.   

A 2010 report by the Milken Institute estimated that increasing the R&D tax credit by 25% would boost real GDP growth by 0.2 percentage point on an annual basis from 2011 to 2013, and 0.1 point after that, with employment rising by 510,000 jobs (0.4%) by 2017.

Government support of R&D -– pioneered in the U.S., where it was enacted in 1981 and extended more than a dozen times -– is gaining ground around the world. In the Organization for Economic Co-operation and Development, 26 countries now using fiscal incentives to promote investment in research, up from 12 in 1995 and 18 in 2004, according to a recent report by the OECD. Indeed, the U.S. now lags a number of countries in R&D tax incentives, including Canada, France and South Korea, according to the report.

It will be a tough race against the year-end, though. And it’s lost out before. Sen. Baucus introduced a similar GROWTH bill -- S. 1203, then called the Grow Research Opportunities with Taxcredits’ Help Act -- in the previous session of Congress. That bill, however, never made it out of committee.