The R&D Tax Credit: Make It Permanent

By August 10, 2007Innovation, Taxation

No ambiguity in this statement from President Bush’s news conference yesterday:

I believe Congress ought to make the research and development tax credit a permanent part of the tax code, to encourage investment.

NAM President and CEO John Engler highlighted those comments in the news release yesterday that applauded the president’s signing of the America COMPETES Act.

Our greatest strength in global competition is our commitment to innovation, and the R&D tax credit is a critical component of that commitment. This battle should not have to be re-fought each and every year. Let’s make it a permanent fixture of our tax system.

The politics of the R&D tax credit are always difficult. The credit is often used as a legislative “sweetener,” a favored provision that can be added to an otherwise mixed bill to make it more palatable. The inveterate tax-raisers also enjoy having a regular measure they can support, giving them at least one pro-business, pro-investment, tax-cutting credit to their name.

But the maneuvering and inevitable delays that go along with this kind of politics do real harm to U.S. R&D competitiveness. The uncertainty discourages companies from investing in U.S.-based R&D, and it’s entirely possible that politics could, eventually, prevent the temporary credit from being renewed. The result would seriously damage the innovation climate in the United States.

Best to sacrifice the positioning in favor of serious-minded, consistent tax policy. Make the R&D tax credit permanent…and better.

The NAM’s legislative agenda on tax policy has a good discussion of the R&D tax credit. You can read it here.

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