Manufacturers know all too well that Congress does not always operate in a way that maximizes business productivity and investment. A prime example is the package of over 50 plus temporary tax provisions, a.k.a. “tax extenders” that expired at the end of 2014 – just two weeks after Congress finally got around to passing them in the first place. Read More
With a strong push from manufacturers, the House passed legislation (H.R. 880) May 20 to reinstate, strengthen and make permanent the tax credit for research and development (R&D) – the lifeblood of manufacturing.
While designed to be an incentive to spur private sector investment in innovation, the R&D credit has never been a permanent part of the tax code. Instead, it has been extended sixteen times since it was first enacted in 1981, most recently expiring at the end of 2014. The on-again, off-again nature of the credit creates unnecessary uncertainty for manufacturers who need to know the credit will be around when planning for long-term R&D projects. Making the R&D credit permanent would provide manufacturers with much-needed certainty, increase its incentive value, create over 36,000 jobs annually, and restore the U.S. position as the leader in global innovation. Read More
Manufacturers must invest in advanced technologies to stay competitive in a 21st century global economy. To be an innovator, manufacturers must hire engineers, scientists, and design teams who will create the next great technology that will make the company, and the economy, more productive. The research and development (R&D) tax credit contributes to this process by alleviating some of the cost of hiring such top-notch R&D teams and investing in the supplies needed to come up with the next big thing. Read More
For years, manufacturers have applauded the efforts of Congressman Kevin Brady (R-TX) and John Larson (D-CT) for championing legislation to finally make the on-again, off-again R&D tax credit permanent once and for all. Now, the wave of new supporters for this much-needed research incentive is picking up momentum. Read More
Manufacturers know first-hand that the lack of a permanent tax incentive for R&D investment is negatively impacting US competitiveness in the global economy. Instead, the US R&D tax credit is constantly being extended temporarily and allowed to expire before companies can even consider factoring in the credit for their future investment budgets. Meanwhile, other countries are ramping up their R&D investment incentives and courting US manufacturers to look abroad. Read More
With the State of the Union address merely hours away, much of the buzz surrounding President Obama’s speech has focused on issues that divide Congress and the business community. Yet, the President has an opportunity to highlight one area where he, Congress, and manufacturers across the country agree –a strong, permanent R&D incentive would boost US innovation, jobs, and global competiveness.
The Administration’s fiscal year 2014 budget proposal included a permanent R&D credit with an enhanced alternative simplified credit (ASC). The Administration even released a report in past years on the merits of a robust US R&D incentive, explaining that an “enhanced and permanent credit will fund more than $10 billion per year in research activity in the United States, supporting nearly 1 million jobs in research.” The report also highlights the credit as a vital way for the US to “out-innovate our competition.”
Manufacturers know firsthand that a strengthened, permanent R&D incentive would provide the certainty needed to enhance its incentive value and help ensure the United States’ leadership in global innovation. For this reason, the R&D Credit Coalition recently wrote a letter to President Obama, urging him to include a permanent R&D incentive in his fiscal year 2015 budget proposal. The letter also called for the ASC to be enhanced to 20 percent, from its current 14 percent.
Since the R&D Credit is now expired, the President should take the opportunity tonight highlight the need to reinstate a strengthened credit as a permanent part of the U.S. tax code, an issue upon which we can all agree.
While Senators Baucus and Hatch introduced legislation last Congress to strengthen and make the research and development incentive permanent, their “blank slate” approach assumes that no tax preferences are safe unless they garner bipartisan support from Senators to be included in tax reform. For this reason, the R&D Credit Coalition sprang into action and wrote a letter to all U.S. Senators, urging them to include support for a strengthened, permanent R&D incentive in their responses to the Baucus-Hatch Dear Colleague.
The R&D Tax Credit is a proven incentive for spurring private sector investment in research and development and for creating high-paying U.S. jobs. The R&D Credit is also needed to keep the United States competitive in the global race for R&D investment dollars, particularly at a time when other countries are offering more robust and permanent R&D incentives, and lower corporate tax rates.
Since manufacturers claim nearly 70% of R&D Credit dollars, the NAM believes that a permanent and competitive research and development incentive should be included in comprehensive tax reform.
To that end, NAM wrote a letter to Senators Baucus and Hatch on July 24, highlighting five tax reform priorities that would help manufacturers grow, create jobs, and compete globally. A permanent, strengthened R&D incentive is one of the five components that would accomplish this goal in tax reform.
To read more about the R&D Credit, click here.
Recently there was yet another plug for a permanent and strengthened R&D Credit, this time from the Washington Post. In a 2/25 editorial “A Chance for Corporate Tax Reform,” the paper applauded the President for including a permanent and strengthened R&D credit in his tax reform framework. As the Post aptly notes, “[P]rivate-sector underinvestment in R&D is a market failure requiring government correction.” On this point, the National Association of Manufacturers says bravo!
More than 30 years of an on again, off again R&D tax credit, is no way to spur cutting-edge technologies and world class innovation in the United States. And this is particularly true today when the credit has expired for the 15th time. It’s no surprise that the U.S. share of global R&D in this century has fallen from 39 percent to 31 percent given the fierce global competition for R&D investment dollars. Once the best in the world during the 1980s, our R&D tax credit today ranks 24 as countries around the globe have created stronger R&D tax incentives to attract the fuel of innovation: R&D. Our global competitors get it. It is not just the economic growth derived from new innovations that makes a country want to be the world’s incubator for the newest innovations, but also the societal spillover benefits and the higher standard of living associated with such innovations.
What manufacturers, who perform nearly 70% of all business R&D in our country know, is that research is inherently risky, costly, and time consuming and a typical R&D project in the manufacturing sector spans five to 10 years. The United States needs more R&D and the tax code can help.
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.
Gov. Jack Markell of Delaware writes about state competitiveness and what’s needed to attract businesses in a Washington Post op-ed today, “Taxes are the wrong focus for economic growth. He raises many serious points toward which manufacturers will be sympathetic:
[Where] will the innovation come from if we don’t make necessary investments in federally funded research? Who will take innovation to market if we don’t help millions of workers retool their skills with appropriate job training? How will we get these new goods to market cost-effectively if we don’t improve our infrastructure? These are precisely the investments other nations are making. We must, too.
The NAM’s Manufacturing Strategy for Jobs and a Competitive America argues for the same priorities, among others. We’re with him.
Indeed, Gov. Markell, a Democrat, is a friend to manufacturing, and his State of the State address in January was right on the mark on how to encourage business.
Still, it seems to us that the Governor is offering a false dichotomy: tax competitiveness versus the other factors like R&D, skills and infrastructure. When Gov. Scott Walker of Wisconsin pounced on Illinois’ decision to raise income taxes by inviting companies to relocate to his state — a story Gov. Markell begins his column with — Gov. Walker was not just telling business he was going to keep taxes under control, he was sending the message that Wisconsin was going to put its entire house in order. A state that can’t balance its budget without a major tax increase is unlikely to set the other policy priorities needed to create a positive business climate.
The other consideration that Gov. Markell does not address is that competitiveness is really a global issue today. States continue to battle each other to attract business, but the real fight is on the country-to-country level. Taxes are so critical in this competition, and the United States is so far behind.
In the Tax Foundation’s latest Fiscal Fact, Scott Hodge reports, “Countdown to #1: 2011 Marks 20th Year That U.S. Corporate Tax Rate Is Higher than OECD Average“:
There is increasing recognition in Washington that the U.S. corporate tax rate is out of step with the lower tax rates of most industrialized and emerging nations. Indeed, 2011 marks the 20th year in which the U.S. statutory tax rate has been above the simple average of non-U.S. countries in the Organization for Economic Cooperation and Development (OECD).
It is now well known that with a combined federal and state corporate tax rate of 39.2 percent, the U.S. has the second-highest overall rate among OECD nations. Only Japan, with a combined rate of 39.5 percent, levies a higher rate.
As Gov. Markell points out, other countries’ governments are spending in critical areas like R&D, infrastructure and skills training. But here’s the point: They’re doing so even with corporate tax rates lower than in the United States.