Articles

Making the Research & Development Tax Credit Permanent

To The Members of the United States House of Representative (or The United States Senate)

The annual R&D Tax Credit has been in place as part of the Economic Recovery Act of 1981. It has been enacted 13 times and allowed to expire a dozen times. In the mid-1990's there was a one-year gap when it wasn't extended retroactively. The lapses are a problem for businesses that must plan for long term research commitments among uncertainty. The lapse can affect companies' reported earnings since they aren't able to assume the credit will be extended. The tax extender has become a yearly exercise for lawmakers, adds to the uncertainty and complexity in the tax law, and adds to the difficulty of businesses to realize the intended benefits.

The R&D Credit Coalition, a group of 300 companies and more than 100 advocacy organizations stated in a letter that, "At a time when the American economy is weak, research and development across industry sectors makes it possible to create and maintain good, high-paying jobs at home and sharpens the ability of companies to compete in the global marketplace."

TechAmerica which represents approximately 1,500 member companies of the U.S. Technology industry estimated that over 100,000 jobs and billions of dollars in economic activity and treasury revenue would have been lost if the R&D tax credit was not extended into 2010. Their research shows that the tax credit costs $9 billion in tax receipts but generates $90 billion worth of economic value.

According to the Organization for Economic Co-operation and Development the United States now ranks 18th for small firms and 17th for large firms after ranking No.1 in the mid 1980's on a list of 21 countries that provide incentives for companies to do R&D. Multinational businesses point out that the uncertainly over the credit makes the U.S. look less competitive when they are deciding whether to locate new research project here or in countries with permanent tax incentives.

The current credit amounts to 20% of qualifying R&D expenses. But because the formula in many cases forces companies to track decades' worth or R&D expenditures, firms increasingly are opting for a simplified but smaller credit of 14%. Making the 20% credit permanent would make it possible for companies to plan ahead, create jobs and economic activity.

High-tech, pharmaceutical, and companies developing new energy technology want the credit to be made permanent and need to know that the credit is going to exist at the time the R&D project is completed. The credit provides a tax break for labor and equipment for projects that typically span 5-10 years.

Monica McGuire, executive secretary of the R&D Credit Coalition said, "If Congress is serious about jobs in this jobless recovery; they ought not to treat the credit like a yoyo." We urge Congress to make the research tax credit a priority and permanent. When businesses are confident the credit will be available long term, they will be more likely to budget for and invest in long term projects that will have a greater impact on employment and innovation.

Sincerely yours,

Rick Humphrey,
President RIX Technology, LLC
3250 Pt. White Dr. NE
Bainbridge Island, WA 98110