Research and Experimentation Tax Credit (R&D Tax Credit) – Obama’s Proposal

Posted on September 8, 2010. Filed under: congress, policy, research & development | Tags: , , |

Today the President proposed an “expanded, simplified and permanent research and experimentation tax credit“. 

In a speech in Cleveland what he reportedly actually said was “Instead of tax loopholes that incentivize investment in overseas jobs, I’m proposing a more generous, permanent extension of the tax credit that goes to companies for all the research and innovation they do right here in Ohio, right here in the United States of America. ”

The fact sheet on (linked above) provides more details:

  • Expand the R&E credit by about 20% (from 14% to 17%)
  • Simplify the credit
  • Make the R&E tax credit permanent (currently it must be extended every year, and in fact expired in December 2009)

The administration proposes that the R&E credit (or R&D credit, as it is more popularly known) would be paid for “with the over $300 billion in loophole closures and other measures proposed in the FY2011 budget.”

What are the benefits, according to the administration?

  • Increases business certainty (see above and my April 11, 2010 blog post on the R&D Tax Credit – An Update  for discussion of repeated – but uncertain – extensions.)
  • 80% of the benefit directly supports jobs in the U.S.
  • Prevents the U.S. from falling further behind other countries in tax incentives for R&Eor R&D.
  • Leverage – $1 of tax benefit leverages up to an additional $2 in private R&D spending in the long run.

So what happens next?  I don’t know what kind of energy the administration will put behind this proposal in the upcoming months, but Congress is on recess until next week; the fiscal year ends in three weeks, and Congress is the entity that must either extend the current tax credit or pass a bill authorizing a new one. 

Earlier this year three bills containing R&D tax credit language had been introduced in the House of Representatives:

HR. 4213, the American Workers, State and Business Relief Act , passed the House Dec. 9, 2009; passed the Senate Mar. 10, 2010;  sent back to the House on March 18th.  If it had passed, the research tax credit would be extended once more, through December 31, 2010, via section 31 of the bill (section titled “Research Credit”).

 HR. 4770, Create Jobs by Expanding the R&D Tax Credit Act of 2010, introduced in the House on Mar. 4, 2010. This bill, if it passes, would increase the credit for research expenses and extend the deadline to December 31, 2011.

H.R.4965, Targeted Job Creation and Business Investment Act, introduced in the House on Mar. 25, 2010.  This bill, if it passes, would make permanent the R&D tax credit.  It was introduced by Rep. Joe Donnelly (D, IN) the day before congress went on recess.  The bill currently awaits action in the House Ways & Means committee.

As of today, both HR 4770 and HR 4965 are languishing in the House Ways and Means Committee with no action since March, it seems.

Meanwhile HR4213, which had passed the House and Senate, found itself rewritten and renamed the “Unemployment Compensation Extension Act of 2010, and was passed into law on July 22nd – with all reference to business tax credits of any kind removed.  In fact, nothing remained of the original bill except the number.

Today Congressman Rush Holt sent letters to the House Majority Leader and the Chair of the House Ways and Means Committee urging them to bring R&D tax credit legislation to the floor.  

As noted above, two related bills are awaiting action in House Ways and Means. But will the House take action?  And if it does, will the Senate follow suit? Or will most energy be directed to trying to pass a budget or a continuing resolution before the end of the fiscal year on Sept. 30, followed by attention to the upcoming elections?  Time will tell.  And meanwhile, in 2010, there is no research and experimentation (or R&D) tgax credit at all.  –NKS

Need more information?  Perhaps I can help.

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One Response to “Research and Experimentation Tax Credit (R&D Tax Credit) – Obama’s Proposal”

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I have been reading about the R&D tax credit at Personally, I think the president is right on this one. We need an incentive to keep R&D in the US. It is just too easy to send the work offshore — and too costly of a loss to our economy. Just my $0.02.

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