Tech groups ask Congress to extend R&D tax credit

Credit set to expire at the end of this month

WASHINGTON -- More than 40 trade groups, many representing the IT industry, have renewed their calls for Congress to extend a research and development tax credit that expires this month, saying the tax break protects U.S. jobs.

Groups such as the Business Software Alliance, the Biotechnology Industry Association, the Information Technology Association of America, and the Information Technology Industry Council (ITI) said the tax credit is a critical piece of U.S. innovation. During a press conference today and in a letter to congressional leaders dated yesterday, the groups pressed Congress to extend the credit, which will expire for the 13th time since 1981, on Dec. 31.

"The credit for us is really a jobs issue," said Jay Timmons, senior vice president for policy at the National Association of Manufacturers. "The bottom line is, it's about keeping high-skilled, high-wage jobs in the United States."

The press conference may have created a sense of deja vu for participants. Every year or two, the tax credit expires or comes close to expiring, and technology, pharmaceutical and manufacturing groups call on Congress to extend the credit, which covers 20% of qualified R&D spending.

Several tech groups, including the AeA and ITI, have urged Congress to make the tax credit permanent, but lawmakers have shied away from the price tag of about $7 billion per year. Some critics have called the credit a government subsidy for large businesses.

On Nov. 9, the House of Representatives passed a bill, the Temporary Tax Relief Act, that would extend the tax credit until Dec. 31, 2008. But the Senate has not acted on the legislation, and some Senate Democrats are pushing for lawmakers to find a way to pay for the cost.

But Sen. Orrin Hatch, a Utah Republican, said raising taxes to pay for the credit isn't workable. "It would be ridiculous to have a permanent tax increase for a temporary R&D tax credit," he said at the press conference.

Hatch also called for Congress to reform the R&D tax credit, phasing out the old way of calculating the credit in favor of another model used by many companies, called the alternative simplified credit.

Hatch said he's confident that the current credit will be extended, but he told trade group members not to expect a "miracle" in their efforts to make it permanent. "We have to fight for it every year," he said. "It's very hard for companies to do their planning."

Other countries are trying to lure companies away from the U.S. with more generous R&D programs, Timmons said. He held up a recent newspaper ad purchased by the Canadian province of Ontario, touting its R&D tax incentives to U.S. companies.

The U.S. had the best R&D incentive program for several years but has fallen to 17th among the 30 member nations of the Organization for Economic Co-operation and Development, press conference participants said.

"If the U.S. does not guarantee similar incentives, we will continue to see R&D activities, innovation and jobs moving offshore," said Christopher Hansen, the AeA's president and CEO.

Copyright © 2007 IDG Communications, Inc.

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