Expiring Tax Credits, Incentives, Provisions: The Enemy of Predictability

By December 23, 2009Innovation, Taxation

From Forbes.com, “Congress Lets 50 Tax Breaks Expire

Among the disappearing breaks are the research tax credit and an annual alternative minimum tax “patch,” which keeps 23 million additional middle-income Americans from being forced into calculating and paying the dreaded AMT. (For 2009, with the patch in place, 4 million upper-middle- and high-income families will pay AMT.)

Wasn’t the AMT fix one of the major issues in Congress of 2007, roiling the political waters with claims and counterclaims about tax increases and irresponsible legislating? And it’s just an afterthought this year. Strange.

For manufacturers, the R&D tax credit is a major issue.

For businesses, the lapsing of the R&D credit–a $7 billion a year break–is a particular problem, since companies must plan for long-term research commitments amid uncertainty. Since its enactment in 1981, the credit has been extended 13 times; in the mid-1990s there was a one-year gap when it wasn’t extended retroactively.

“Companies are sensitive to that,” says Monica McGuire, executive secretary of the R&D Credit Coalition in Washington, which represents such research heavyweights as 3M, AT&T, GenentechHewlett-Packard, and Xerox. “If Congress is serious about jobs in this jobless recovery, they ought not to treat the credit like a yo-yo,” she adds.The lapse could also affect companies’ reported earnings, since they won’t be able to assume the credit will be extended.

The expiring estate tax is a particularly complicated case, full of questions of life and death and retroactivity. Forbes.com covered the issue in a good story last week, “Congress Throws Estate Plans Into Disarray,” anticipating litigation and administrative nightmares. To say the least.


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