Obama calls for permanent R&D tax credit

IDG News Service - U.S. President Barack Obama has called on Congress to approve a permanent research and development tax credit for U.S. companies as part of a multibillion-dollar package intended to jump-start the nation's economy.

Obama, in a speech in Cleveland Wednesday, asked Congress to make permanent an R&D tax credit that has lapsed 13 times since 1981.

The tax credit and other proposals will help U.S. companies create jobs, Obama said. "I've never believed that it's government's role to create jobs or prosperity," he said. "I believe it's the drive and the ingenuity of our entrepreneurs, our small businesses, the skill and dedication of our workers, that's made us the wealthiest nation on earth."

Obama's proposal would expand the tax credit from about $7 billion a year to about $10 billion a year over the next decade. The president's plan would also change the formula that businesses use to calculate their credit, with companies that use a simplified formula getting a tax credit of 17% of R&D spending, instead of 14%.

The proposal earned praise from several tech groups. Trade groups representing the tech industry have long pushed for a permanent R&D tax credit, but lawmakers have been reluctant to extend the credit because of its cost.

Every dollar spent on the tax credit generates two dollars of economic activity in the U.S., said Rey Ramsey, president and CEO of TechNet, a lobbying group representing tech CEOs.

"The R&D credit is one of the strongest tools our nation has to spur the cutting-edge innovation that will drive the creation of more American jobs," Ramsey said. "Now more than ever, American businesses need the certainty that comes with a permanent credit so they can plan their R&D investments over the long term instead of the current practice of yearly start-and-stop."

A permanent R&D tax credit will help several sectors of U.S. economy, added Evelyn Hirt, president of the Institute of Electrical and Electronics Engineers-USA (IEEE-USA).

A permanent credit "would provide corporations some needed economic predictability in these turbulent times," she said in a statement. "The technologies U.S. companies develop or improve will ultimately have a positive effect on U.S. competitiveness, the growth of small businesses and job creation."

The R&D tax credit would be part of a spending and tax-cuts package estimated to cost $180 billion to $350 billion. The proposal would include new spending for road and bridge repair, tax cuts for middle-class residents and a full tax deduction for capital expenditures at U.S. businesses through the end of 2011.

Obama would pay for the proposal by closing what he called some tax loopholes in other areas. He talked about tax breaks for U.S. corporations that move jobs overseas, apparently targeting rules in the tax code that allow U.S. corporations to pay the overseas tax rate on money earned outside the U.S. if that money stays outside the country.