House Passes 1-Year Extension of R&D Tax Credit in Tax Bill

By December 10, 2009Economy, Innovation, Taxation

The House on Wednesday passed H.R. 4213, the Tax Extenders Act, by a vote of 241-181. Included in the measure was a one-year extension of the Research and Development Tax Credit, a critical priority for manufacturers and U.S. innovators.

The R&D Credit Coalition, which the National Association of Manufacturers helps lead, on Tuesday sent a letter to the Hill signed by more than 5,300 employees from 135 companies. Bloomberg also reported on the push for the credit:

Among the tax breaks being renewed is a research and development credit created in 1981 on a temporary basis and extended more than a dozen times. Thousands of companies including Dow Chemical Co., Microsoft Corp. and CA Inc. lobby for its renewal, saying 70 percent of the benefit pays the wages of U.S.-based researchers.

“The R&D tax credit is pretty much a key component of our ability to hire,” said James Barry, senior vice president of corporate technology development at Boston Scientific Corp., maker of coronary stents and other medical devices.

The one-year extension is a good thing, but the Congressional pattern of letting the credit expire or near expiration, then extending it — retroactively — adds uncertainty to business investment decisions. Many other countries have R&D tax credits that are more generous and permanent. As Monica McGuire, senior policy director for the NAM, explained in an NPR segment this morning:

“Companies need continuity to know that the credit’s going to exist at the time the R&D project is completed,” says McGuire. “In manufacturing, the typical R&D project could span five to 10 years.”

McGuire calls the R&D credit a jobs credit, noting that most of the money saved goes to pay employees. Manufacturing has shed more than 2 million jobs since the recession started. Still, even in a tough economy, the credit’s extension is a thorn for deficit hawks.

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