Expired Tax Provisions Create Uncertainty, Earnings Volatility for U.S. Manufacturers

By January 23, 2014Taxation

While most Americans see the start of the New Year as a time for positive changes, many manufacturers  considered January 1, 2014 a day that marked the continuation of an alarming trend – Congress once again allowed the R&D tax credit and other important tax provisions to expire.

Unfortunately, this is repeat of what happened at the end of 2011 when the R&D credit and over fifty tax provisions usually considered in an “extenders” package lapsed and were not reinstated until the fiscal cliff deal retroactively extended the package until the end of last year. The fact that Congress decided to adjourn at the end of 2013 without addressing the expiring tax provisions signals that while lawmakers may feel these provisions matter, they have placed less emphasis on the timing of when they are extended – a significant problem for manufacturers.

The expiration and retroactive extension of the R&D credit spurs volatility in manufacturers’ earnings. A recent Bloomberg article captures this problem, citing that many companies’ Q4 2012 earnings were lower because of the expired tax credit, but then saw a one-time boost in earnings in Q1 2013 after the retroactive reinstatement where five quarters of the tax benefits were claimed. This is a headache for manufacturers and investors alike, as tax rates and earnings may change significantly by quarter or year.

Manufacturers claim the most R&D credit amounts out of any industrial sector and account for the lion’s share of private-sector research and development. Allowing the credit to repeatedly expire creates unnecessary uncertainty for American businesses investing in R&D and serves as a roadblock on the path to innovation.

The NAM urges Congress to include an enhanced R&D incentive as a permanent part of the tax code to boost U.S. investment in R&D, create high-wage jobs, and spur economic growth. Absent action on a permanent incentive this year, the R&D Credit must be seamlessly extended as soon as possible.


Christina Crooks

Christina Crooks is Director, Tax Policy for the National Association of Manufacturers, where she is responsible for providing NAM members with important updates on tax policy, pensions, and corporate finance and management issues and representing the NAM’s position on these issues before Congress and the Administration. Within the NAM tax policy portfolio, Christina focuses on the R&D tax credit and tax extenders, and serves as the Executive Secretary for the R&D Credit Coalition and a leader in the Broad Tax Extenders Coalition.

Before joining the NAM, Crooks served as senior manager of government affairs for Financial Executives International, where she advocated on behalf of the association’s membership of senior-level business executives on tax, corporate treasury, pension and benefit issues. Previously, she worked as a legislative assistant to Rep. Michael Castle (R-DE), a senior member of the House Committee on Financial Services. Christina handled financial services issues for the Congressman during consideration of the Dodd-Frank Act, and also worked on small business and judiciary issues. Christina earned a B.A. in Political Science from the University of Delaware and a M.A. in Political Science from American University.

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