Senators Propose Changes to R&D Tax Credit

Posted on June 10, 2009. Filed under: Uncategorized |

Facing a year-end deadline, Senators propose a permanent, enhanced tax credit for research and development.

A bipartisan group of members of the Senate Finance Committee is proposing a new plan that would enhance and simplify the way the federal government uses the tax code to reward companies for investing in research and development.
Without action, the tax credit is set to expire at the end of this year.
Under current law, companies can use what is known as the traditional structure that bases R&D tax credits on increases in spending over a base period of 1984 through 1988. Alternatively, they can use a base level derived from their R&D spending for the previous three years.
Under the new plan – unveiled by Finance Committee Chairman Max Baucus (D-Mont.), Sen. Orrin Hatch (R-Utah) and eight others – the traditional credit would expire at the end of 2010 and the alternative method would be enhanced to increase the amount of covered qualifying expenses from 14 percent to 20 percent.
The bill also would make the tax credit permanent, something companies with significant R&D investments have long sought. President Obama also backs making the credit permanent, but has not supported any changes to the way the program works.
The R&D Credit Coalition, which represents hundreds of companies large and small that invest in R&D, has been pushing for an extension of the tax credit and an increase in the amount companies can claim. Enhancing the credit, the coalition says, will help stimulate the economy
“Continued growth of the U.S. economy is closely tied to the ability of our companies to make a sustained commitment to long-term, high-cost research. The R&D tax credit is a positive stimulus to U.S. investment, innovation, wage growth, consumption, and exports — all contributing to a stronger economy and a higher standard of living for American workers,” the group said.
In a letter to Obama earlier this year, representatives of Boeing, Microsoft, Dow and the National Association of Manufacturers applauded the President for backing a permanent R&D tax credit, which they said is critical to U.S. economic growth.
“In this challenging economic climate, some may view research spending as an unnecessary expense. Like you, we believe that investments in research are critical to the nation’s future economic expansion,” the group wrote
Baucus agreed.
“Much of our economic vitality comes from the innovation, research, and intellectual property stemming from this tax credit,” he said. “Our bill would make it easier to access the benefit, making the credit work even more effectively and continue to lead the way to new technologies, domestic job growth and, ultimately, a stronger U.S. economy.”
Other co-sponsors of the bill are Sens. John Kerry (D-Mass.), Blanche Lincoln (D-Ark.), Ron Wyden (D-Ore.), Chuck Schumer (D-N.Y.) Maria Cantwell (D-Wash.), John Ensign (R-Nev.), Robert Menendez (D-N.J.), and John Cornyn (R-Texas).

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