Tag: R&D Tax Credit

TI CEO Testimony Hits the Mark on NAM’s Innovation Policy Agenda

The testimony of Texas Instruments’ (TI) CEO, Richard Templeton at the House Science and Technology Committee 2/6 hearing on  “American Competitiveness:  The Role of Research and Development,” endorsed key principles of NAM’s Innovation Policy Agenda with laser precision. His support of STEM (science, technology, engineering and mathematics) education; reversing the growing skills gap in the United State; boosting underfunded federal, basic research spending; fixing the high skilled immigration system; and providing robust, competitive R&D tax incentives are all smart policies that will drive future innovation and job growth in our country.

Templeton got it right about the role research plays in advancing America’s competitiveness: “…federal funding of fundamental scientific research is critical to our nation’s continued competitiveness, economic growth and workforce development” as basic research is the key to unlocking future innovation in the United States. This is important because innovation has a proven track record in helping manufacturers companies to grow. Manufacturers lead all industries in innovation investments, accounting for 70 percent of all private sector research and development spending. This investment results in new product development, increased productivity, and job creation, not to mention the societal spillover benefits that improve our country’s standard of living.

Other countries recognize the exponential value of being home to world class innovation and have enacted attractive innovation policies to lure future R&D activity outside the United States. Templeton’s testimony gives credence to this global competition by citing a disturbing trend — OECD (Organization for Economic Cooperation and Development) data showing a decline in the U.S. share of global R&D as a percent of GDP from 39 percent to 34 percent from 1999-2010. He cites other stark statistics such as our current skills gap that “…for every unemployed person in the United States, there are two STEM job postings,” which should be a wakeup call for policymakers.

The NAM joins Mr. Templeton in urging lawmakers to enact smart policies that will reverse this trend and drive future innovation in the United States. A first step would be to avert the across-the- board spending cuts from the sequester set to occur March 1. These arbitrary cuts will foolishly cut federal funding of basic research programs and STEM education. An op-ed coauthored by Mr. Templeton appearing 2/6 in Politico sums up the expected negative impact on innovation from sequestration:  “…there will be a significant, long-term irreparable price to pay if the U.S. government slashes its support for science and engineering and for those who pursue those fields.”

Doesn’t this impending sequester of federal programs that spur innovation reflect the old adage “penny wise, pound foolish”? These imprudent budget cuts if allowed to occur will be a direct hit at future innovation and economic growth that will reverberate for years to come.

NAM applauds Mr. Templeton’s voice for pro-innovation policy that will result in unleashing future American innovation and create a 21st century workforce to meet the needs of manufacturing. Lawmakers would be prudent to act on his recommendations.

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Business Coalition Weighs in on Need for Tax Extenders

Once again a number of important tax incentives are scheduled to expire on December 31st, clearing the way for a tax increase on millions of U.S. taxpayers that benefit from these provisions. Manufacturers have an interest in a number of these provisions including the Controlled Foreign Corporation (CFC) look through rules, deferral for active financing, and the R&D tax credit that help us create and retain jobs and compete in the global marketplace.

Because of the importance of these and other provisions to the business community, the NAM today joined more than 1,500 other companies and organizations on a letter to all members of Congress urging them to act quickly to extend these pro-growth, pro-job provisions.

While many in Congress focus on much-needed tax reform, the letter makes a strong case for why these “extenders” can’t wait until negotiators agree on how to revamp the tax code.

“The lack of timely congressional action to extend these provisions would inject more instability and uncertainty into the economy and further weaken confidence in the employment marketplace… Even though Congress has begun to consider tax reform proposals, a wide-ranging group of taxpayers is making decisions right now related to current law which will have an immediate impact on the economy.”

Plain and simple, “tax extenders” mean jobs and competitiveness for the U.S. economy It’s something that we can ill-afford to wait for in these unsettled economic times.

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A Bittersweet Anniversary for the U.S. Research and Development (R&D) Tax Credit

The U.S. R&D tax credit, a proven tool for spurring innovation and creating jobs, has a bittersweet 30th anniversary on August 13. Bittersweet because the credit, the best R&D incentive in the world in the mid-1980s, is one of the weakest today.

This negative trend is bad for manufacturers and the economy, especially now that other countries aggressively court American manufacturers to move their domestic research by offering better and often permanent R&D tax incentives.  (To learn more about what other countries are offering, read this Deloitte survey of R&D tax incentives around the world.)

These countries have discovered the multiple spillover and societal benefits, like a higher standard of living, associated with the innovations derived from research. For sure, there has been a steady increase in the migration of domestic research offshore–the U.S. share of global R&D has dropped from 39 to 33 percent in less than a decade as more nations have entered the race to attract R&D dollars.

The credit’s power to spur innovation and create jobs hasn’t been helped by its history of lapses and retroactive extensions. Since its enactment in 1981, the credit has expired 14 times, including a one-year lapse in the mid-1990s that was never reversed—and the credit is set to expire once again at the end of this year.  The uncertainty caused by these stop-and-go credit extensions has had a damaging impact on companies’ future R&D budgets because companies cannot rely on the credit to exist for the duration of a research project, which typically spans 5 to 10 years for manufacturers.

R&D fuels innovations and technological advances that drive new product development and increased productivity—key factors necessary for growth in the manufacturing sector.  Many lawmakers are voicing repeated interest in creating a pro-manufacturing climate in the United States.  Now they can turn their words into action, specifically through enactment of H.R. 942, bipartisan legislation that would strengthen the alternative simplified research credit rate to 20 percent from its current 14 percent, and make it permanent.  There is a long history of bipartisan, bicameral congressional support as well as presidential support for a strengthened, permanent R&D tax credit.  Future anniversaries of the credit would be sweeter if the U.S. R&D tax credit’s incentive value is restored to a position of global leadership.

For more information about the R&D credit, visit the website of the R&D Credit Coalition.

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R&D Tax Credit: Investment, Jobs, Innovation by Manufacturers

The Department of Treasury on Friday released a new report, “Investing in U.S. Competitiveness: The Benefits of Enhancing the Research and Experimentation (R&E) Tax Credit,” with the full .pdf available here.

The report, developed to support the Obama Administration’s promotion of a permanent and stronger R&D tax credit, reaffirms the credit’s value to the U.S. economy, especially the manufacturing sector. In 2008, manufacturers claimed $5.78 billion worth of tax credits, or 69.3 percent of the total. The top three manufacturing sectors claiming the credit were:

  • Computer and electronic product manufacturing: 31.5 percent of the total claimed.
  • Chemical manufacturing: 25.9%
  • Transportation equipment manufacturing: 20.5%

The Administration proposes:

  • Making the R&E Credit Permanent. The President proposed in his FY 2012 Budget to permanently extend the R&E credit so that businesses can make investments in research projects, confident that they can benefit from the credit in the future. The President has placed a high priority on making the credit permanent, proposing this in his previous two budgets as well.
  • Increasing the Alternative Simplified Credit Rate by More than 20 Percent. While the President has previously proposed making the R&E credit permanent, the Administration now also proposes to increase the rate of the alternative simplified credit from 14 percent to 17 percent. This will provide a larger incentive to increase research and simplify the credit by encouraging firms to switch to the alternative simplified tax credit base. The Administration’s proposal maintains the current regular research credit to prevent disruption to firms that choose to continue claiming the regular research credit.

Secretary Geithner gave brief remarks Friday that mentioned the tax credit when he visited NanoMech, a nanotech-products manufacturer in Northwestern Arkansas.

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Make R&D Tax Credit Permanent, Even in Revamped Tax Code

Bloomberg, “Treasury Department Supports Permanent Research Tax Break Even in Overhaul,” reporting on Treasury’s support for a more robust, permanent R&D Tax Credit as part of a revamped tax code.

Michael Mundaca, assistant Treasury secretary for tax policy, said that the economic benefits and high-wage jobs generated by the research credit make it worth preserving, even in a tax system with fewer targeted tax incentives.

“In a reformed system, you’d still want some incentives to be provided for research activity, and we think this is a good incentive to provide,” Mark Mazur, the department’s chief tax economist, said at a briefing with reporters in Washington yesterday.

The briefing accompanied the advance release of a new report, as reported by Reuters, “Obama tax credit will support 1 mln workers-report.”

Treasury Secretary Geithner will highlight the jobs connection when he visits a high-tech manufacturer in Northwest Arkansas today. From ArkansasBusiness.com, “NanoMech Ready for Appointment with Geithner“:

NanoMech Inc. chairman and CEO Jim Phillips grasps firmly the significance of U.S. Treasury Secretary Tim Geithner’s Friday visit to northwest Arkansas.

“He could’ve gone to the Silicon Valley, he could’ve gone to the Research Triangle,” Phillips said Thursday morning, “but he’s coming here.”

Geithner’s visit is multi-pronged. He will meet with a group of regional business leaders at the Arkansas World Trade Center and also is expected to address the release of a report detailing the economic benefits of President Obama’s Fiscal Year 2012 Budget proposal to enhance the Research & Experimentation tax credit.

NanoMech anticipates Secretary Geithner’s visit in a news release, “U.S. Treasury Secretary Timothy Geithner Makes Historic Visit to NanoMech Plant in Springdale.”

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Time for a Permanent R&D Tax Credit (Long Past Due, Actually)

From The Hill (blog), “Bipartisan House members make push for R&D tax credit“:

A bipartisan group of House members is hoping now is the time to expand and permanently extend a tax credit for research and development.

At a Wednesday news conference in the Capitol, six lawmakers said they believed legislation they were backing would offer companies more certainty and help the United States stop losing ground to global competitors when it comes to innovation.

“This is an issue that cuts to the core of who we are as a nation,” said Rep. John Larson (D-Conn.), the chair of the House Democratic Caucus. “Manufacturing is part of our DNA. In order to make things in America, you have to be innovative. In order to be innovative, you have to make the investment in research and development.”

The bill is H.R. 942. The Hill’s technology blog, Hillicon Valley, reports support from the tech industry.

Rep. Kevin Brady (R-TX), chief sponsor of the bill, issued a news release marking its introduction. Excerpt:

“Innovation drives America’s future,” said U.S. Congressman Kevin Brady (R-Texas), a senior member of the House Ways and Means Committee and the author of The American Research and Competitiveness Act of 2011. “To keep from falling behind our global competitors and to make sure America is the first choice for R & D jobs we need to modernize the tax credit, strengthen it to encourage companies to make greater investment in research and jobs and make the credit permanent so businesses have the confidence to make long-term investment decisions here in the United States.”

The National Association of Manufacturers praised the bill.

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From the R&D Credit Coalition, a Letter to the President

The R&D Credit Coalition has sent a letter to President Obama calling on him to include a permanent R&D tax credit in his Fiscal Year 2012 budget. The argument:

On behalf of the hundreds of thousands of employees represented by the companies and related trade organizations, which comprise the R&D Credit Coalition, thank you for your strong and continued support for the research and development (R&D) tax credit. We urge you to include a strengthened, permanent R&D tax credit in your fiscal 2012 budget request to Congress. Your fiscal 2011 budget contained a proposal to permanently extend the current R&D credit.

The credit is set to expire again on December 31, 2011, and the Coalition is actively working to permanently extend and strengthen the credit by increasing the rate for the Alternative Simplified Credit. We believe that a strengthened, permanent credit will help maintain the United States as a world leader in R&D – a vital engine for the creation of high quality jobs that will support economic recovery in our nation. A recent OECD report on research tax incentives ranked the United States 24th in terms of competitiveness.

The letter is signed the coalition’s leadership: Janet C. Boyd of The Dow Chemical Company, Ann Taylor of sanofi-aventis U.S. Inc., Catherine T. Porter of Agilent Technologies, Inc., and Monica M. McGuire of the National Association of Manufacturers. Monica is executive secretary of the coalition.

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Senate Approves Tax Package by 81-19 Vote

The vote on H.R. 4853 (or more precisely, the motion to concur in the House amendment to the Senate amendment with Amdt. No. 4753 to H.R. 4853) was 81-19 in support. The margin of victory should provide momentum for passage as the House takes up the bill Thursday.

This is good legislation, a compromise with many more plusses than minuses in terms of jobs and economic growth. As the National Association of Manufacturers’ “Key Vote” letter in support of the bill summarized:

Manufacturers strongly support extending the 2001/03 tax relief to all Americans. Over 70 percent of U.S. manufacturers file as S-corporations or other pass-through entities; most would be significantly and adversely impacted by the higher tax rates that will take effect without congressional action. The non-partisan Congressional Budget Office estimates that fully extending the 2001/03 rates would add between 600,000 and 1.4 million jobs in 2011 and between 900,000 and 2.7 million jobs in 2012. Moreover, lower tax rates on capital gains and dividends will boost capital investment and economic growth.

The NAM has consistently called for repeal or significant reform of the estate tax. For small and medium-sized manufacturers (SMMs), business owners and families, the estate tax is more than a one-time tax. In a 2009 survey of our SMM members, respondents said they spent, on average, $94,000 annually on fees and estate-planning costs in preparation for their estate tax bill. This is money that could have been used to grow businesses and add jobs.

Renewal of the research and development (R&D) credit and other business extenders is critical to manufacturing competitiveness and should be extended. Manufacturers claim nearly 70 percent of the R&D credit, and R&D fuels innovation that translates into new products, increased productivity and jobs. Similarly, extension of deferral for active financing and the look-through rules will help U.S. competitiveness. Other extenders promote energy efficiency and make permanent important employer-provided education assistance. Moreover, the 100-percent expensing provision will create a positive ripple effect in the economy by encouraging investment and creating demand for machinery and equipment.

Update: From The Business Journals, “U.S. Senate approves Obama tax-cut deal“:

“The bill is a good first step to eliminate much of the uncertainty that has been holding back investment and job creation by manufacturers and the broader business community,” said Jay Timmons, executive vice president of the National Association of Manufacturers.

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New York Times: ‘Tax Breaks Bring Hope for Hiring’

The New York Times reports on manufacturers’ reaction to the tax compromise moved forward by the Senate on Monday. The story is, “Tax Breaks Bring Hope for Hiring“:

To many manufacturing companies, the tax cut proposal now being considered in Washington may be just enough to spur additional spending and hiring.

At Yushin America, a Rhode Island company that makes and maintains robotic manufacturing equipment, executives say that the business tax breaks would allow them to invest in new machinery, new employees and even a new roof.

“It’s a chance for us to put it back in the business and grow,” said Michael Greenhalgh, operations manager of the company in Cranston, which employs 60 people and has annual sales of about $21 million.

The story quotes the NAM’s Monica McGuire and uses Bison Gear and Engineering in Illinois as a case study of how the tax treatment can spur investment.

Because Bison is organized as a subchapter S corporation, and its income is taxed at its owners’ individual rate, it will benefit if Congress extends the tax break for the wealthy. The company, which has $50 million in sales and 225 employees, will also reap tax savings from the changes in depreciation and research policies.

Ron Bullock, company chairman, said three positions in the research and development staff had been vacant for months as he tried to gauge the strength of the economic recovery and the prospects of a double-dip recession. With the tax savings, Mr. Bullock said, he expects to hire as well as replace aging equipment.

“Other businesses will use their tax incentives to order products from us, which will allow us to hire and, hopefully, expand,” he said. “That’s the way you turn an economy around, and allay the fears people have about whether this economy is a good place to invest.”

Ron is an NAM board member.

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The Tax Compromise is a Good Compromise for Manufacturers

The House Democratic caucus is fuming, but …

From NationalJournal.com, “The Rupture Between House Democrats and the White House“:

Still, the current thinking is that the Senate passes it without amendment, and the House receives it next week  when the U.S. Chamber of Commerce and others, possibly the Business Roundtable and National Association of Manufacturers, weigh in.

If they’re in favor, the pressure will be too great for the Blue Dogs, New Democrats, and wobbly Republicans to resist. But this is a strategy and a chalkboard play that lacks one key ingredient — the football. The lack of a bill makes all of this theoretical.

The NAM already weighed in! Here’s our news release, “Manufacturers: Proposed Compromise on Tax Relief Is a Positive Step for Jobs and Economy.”

And since the article was written, there does appear to be a bill. The Senate Democratic caucus has released the text of legislative language, “The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.”

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