R&D Tax Credit Shouldn’t Be ‘Political Football,’ Tech Groups Say
Congress is turning a “deaf ear to reality” by not passing a permanent, “strengthened” R&D tax credit that can keep America competitive with other nations for innovative research, outgoing Rep. Johnson (R-Conn.) said Tues. Speaking with returning Rep. Tiahrt (R-Kan.) and several tech trade groups, Johnson called herself “very hopeful the next Congress will have the guts” to pass a credit that doesn’t need annual renewal and that keeps U.S. research competitive with those of R&D-friendly places like India and Ireland.
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Software, telecom, consumer electronics and seemingly dozens of other industries weighed in separately. “Research currently under way is in jeopardy of slowing down, and new innovation will most certainly be shelved when faced with an increasing tax burden,” Business Software Alliance Pres. Robert Holleyman said in a written statement: Without the credit, his members “could not afford to continue to innovate at a pace consumers have come to expect and economies have come to rely on.” The credit will bring “much-needed investment certainty” to the telecom industry, which is “working hard to stay ahead of the technology curve,” USTelecom said.
The Semiconductor Industry Assn. said the credit has broad bipartisan support and “should not be delayed until next year,” as do raising the H1-B visa cap and passing the appropriations bill covering scientific research. “It is increasingly more difficult for companies to commit to future high-risk, high-dollar R&D investments that would create high-wage jobs in the U.S.” without a permanent credit, said National Assn. of Mfrs. Pres. John Engler, a former Mich. governor.
“We tried to be understanding” with the congressional leadership, which said they had to campaign before taking up the R&D tax credit, ITAA Pres. Phil Bond said at the Hill event. The R&D Credit Coalition, which includes hundreds of trade groups, companies and research institutions, asked for Congress to get the credit to the President’s desk in Sept. “Now the political season is over” and the credit needs lame- duck passage, Bond said. The credit expired at the end of 2005; the House and Senate passed a strengthened credit for a year but adjourned before completing a final bill.
“Today it is important that we start looking over our shoulder,” said Tiahrt, founder and chmn. of the House Economic Competitiveness Caucus. China provides 100% deductions for the first 5 years of a company’s R&D work, and 50% deductions for the next 5, and even Finland provides more than $1 billion in relief for tech companies’ R&D expenses, he said. Australia provides a 125% deduction, American Electronics Assn. Pres. Bill Archey said. If R&D spending were treated as capital investment, it would have accounted for 7% of U.S. growth 1995-2002, Johnson said.
Over the years the credit has been “whittled away,” leaving the U.S. 17th among countries for generosity of the credit, said Information Technology Industry Council Pres. Rhett Dawson. The U.S. deduction is now just 20%, and actually declines as a company spends more on R&D, Archey said. Karen Myers, CA vp-govt. relations, said the credit should be available to all “research-intensive companies,” not just those with formal R&D operations, given the various business models now prevalent. Other countries followed the U.S. lead in the early 1980s by cutting their corporate tax rates and instituting a research credit, but the U.S. let itself fall behind, Johnson said. Dawson called himself optimistic that Congress will stop “tossing this political football around” next year and pass an expanded credit.
Electronics Industry Assn. Pres. Dave McCurdy, a former Democratic congressman, blamed “some in leadership” for using the credit as a “vehicle” for other legislation. Tiahrt called the credit a “bargaining chip.” Asked to explain the “bargaining chip” after Tiahrt left, Bond hesitated before saying Congress needs to treat the credit “as a priority, not a pack mule.” Pressed further on whether tech groups were considering targeted campaign donations to get the credit moving again, Bond said ITAA would “build relationships going forward.” Archey said that Sen. McCain (R-Ariz.) had once told his group that members were using the credit debate to spur campaign donations.