Tech firms push for R&D tax credit, saying it means jobs

If a research and development tax credit is allowed to expire at the end of the year, 120,000 U.S. jobs could be put at risk, according to a group of companies supporting an extension.

A lapse in the tax credit could also put at risk $16 billion in R&D and related economic activity, the R&D Credit Coalition said.

The coalition today called for Congress to make the tax credit permanent and to increase the credit paid to some companies. The R&D tax credit, which gives eligible companies a tax credit of 14% to 20% of R&D spending, has been temporarily extended multiple times since it was first approved by Congress in 1981.

The tax credit "has been a driver of jobs and a boost for the U.S. economy, said Karen Myers, vice president of global government relations for CA Inc. Coalition members are concerned that Congress will adjourn this year without extending the tax credit, putting U.S. companies' R&D plans in flux, she said.

Lawmakers have been reluctant to make the tax credit permanent partly because of its cost -- about $7 billion a year. Some groups, including tax reform advocates Citizens for Tax Justice, have called the R&D tax credit "corporate welfare."

But members of the coalition said the tax credit has huge economic benefits for the U.S. and President Barack Obama, who has called for the credit to be made permanent, has said it returns $2 to the U.S. economy for every dollar spent.

"We're talking about 120,000 jobs -- if anything, this is citizen welfare ... or employee welfare," said Bartlett Cleland, senior director of policy for TechAmerica, a tech trade group aligned with the R&D Credit Coalition. "These are not 120,000 sweep-the-floor jobs. These are highly compensated, well-educated U.S. employees."

There's a growing pressure on U.S. companies to take R&D work overseas, coalition members said. The U.S. had the highest R&D incentives when the tax credit was first passed in 1981, but now 16 other nations have more generous incentives, they said.

"When you see the other incentives that countries are offering, it's becoming a more challenging hurdle to keep R&D in the United States," said Marie Lee, director of finance and tax policy for TechAmerica. "Particularly when we see the credit lapse, that does [affect] the decisions companies make."

The cost of extending the credit -- without increasing it to 20% across the board, as the coalition wants -- would cost about $68 billion over 10 years, according to congressional estimates. Asked about budget concerns in Congress, Myers said many lawmakers continue to be concerned about jobs and unemployment in the U.S.

"Lawmakers are very sensitive to cost in this environment," she said. "However, the fact that the credit is very closely aligned with jobs, and closely aligned with economic growth, I think it's an incentive for which lawmakers have a lot of sympathy."

On Tuesday, more than 400 companies and trade groups sent a letter to all members of Congress, asking them to make the R&D credit permanent and increase the rate. A number of tech companies signed the letter, among them Adobe Systems, AT&T, Cisco Systems, Dell, Intel, Hewlett-Packard, and Microsoft.

A number of companies outside the IT sector also signed the letter, including Harley-Davidson, Toyota and the Schwan Food Co.

Copyright © 2009 IDG Communications, Inc.

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