Rep. Jerry McNerney, D-Pleasanton, introduced a bill today that would make permanent a research and development tax credit.
The credits have been around in various forms for years and are frequently extended but they have existed in a near-constant state of uncertainty.
A similar bill in the U.S. Senate authored Sen. Orrin Hatch, R-Utah, also apparently has broad support, which may bode well for the eventually passage of the legislation.
Here’s McNerney’s press release on the bill:
The bill, H.R. 5681, introduced today and referred to the Ways and Means Committee for further consideration, is entitled the Innovation Tax Credit Act.
“Research and development tax credits have inspired the research and innovation that has led to major breakthroughs in all different types of products from wind turbine parts to life-saving medical technologies and computers,” Rep. McNerney said. “My bill makes it easier for businesses doing research to take advantage of the credit and to plan for future investment.”
First introduced in 1981, the Research and Development Tax Credit’s existence has always been temporarily renewed, 12 times in fact, leading to uncertainty about its existence and difficulty in planning future investment.
Additionally, there are currently five different credits, or ways to claim credit, that fall under the “Research and Development Tax Credit” heading. This has led to a notoriously complicated and complex process to compute and claim the credit. As a result, many businesses are not able to take full advantage of the tax credits.
Rep. McNerney’s bill simplifies the entire process by providing one overarching tax credit, currently referred to as the Alternative Simplified Credit. It implements a phased increase in the amount of the credit, from 16 percent in 2008 to 18 percent in 2009 to 20 percent thereafter, and makes the tax credit permanent.
“In a weak economy, we should be doing everything we can to spur on innovation and the type of family-wage jobs that increased research and development will create,” said Rep. McNerney.
A number of studies have found that the U.S. economy benefits from a two-to-one and even a three-to-one return on investment through R&D tax credits.
Also, there is significant evidence the R&D credit effectively stimulates investment in research which offers a net benefit to the U.S. economy in terms of economic development. Moreover, a 2005 study by Berkeley’s Haas School of Business found that R&D tax credits help attract and maintain research investments in the U.S. when the pressure to conduct such research in other countries is great.
The effort to simplify, increase and make permanent the R&D tax credit, as Rep. McNerney’s bill does, is supported by major research universities, telecommunications and bio-tech firms, aerospace and defense companies, as well as the automotive industry, among others.
One such high-tech company, based in Silicon Valley with a major presence in Pleasanton, that supports H.R. 5681 is Oracle.
“We at Oracle applaud Congressman McNerney’s leadership to make the R&D Tax Credit a more effective tool to ensure our nation remains the world’s innovation leader. More and more countries are utilizing the tax code to lure R&D-intensive industries because of their job-creating potential. The McNerney bill would help boost R&D investments in this country, and we hope it will spur Congress to restore and reform the R&D credit this year,” said Robert Hoffman Oracle’s vice president of government and public affairs.
The National Association of Manufacturers, many of whose members rely greatly on the R&D Tax Credit, also had praise for the Innovation Tax Credit Act.
NAM’s Vice President for Tax and Domestic Economic Policy Dorothy Coleman said, “The NAM thanks Congressman McNerney for his commitment to the R&D tax credit.”
Coleman continued, “Robust R&D spending spurs the innovation needed to keep the American economy on a strong footing in the 21st century. We believe that, in a global economy, the United States must have a strong, permanent R&D tax credit that encourages companies to pursue research projects in the United States.”
The University of California system, a major beneficiary of existing R&D tax credit provisions, also applauded the legislation’s introduction.
“The University of California congratulates Congressman McNerney on the introduction of this important legislation. His emphasis in this legislation on simplifying and strengthening the basic university research tax credit is a critical step forward for our nation’s innovation agenda and for keeping California competitive,” said UC Assistant Vice President for Federal Governmental Relations Scott Sudduth. “This provision will strengthen the private-public partnership in R&D and will be a major boost for basic research at out nation’s universities and national laboratories, like Lawrence Livermore National Laboratory.”