Think tank calls for expansion of R&D tax credit

And it wants the credit made permanent

The U.S. Congress should not only make a research-and-development tax credit permanent, but it should also significantly expand the program, a technology-focused think tank said today.

The Information Technology and Innovation Foundation (ITIF), based in Washington, D.C., called on Congress to double the tax credit, from 20% of qualified R&D expenses to 40%. Congress should also make the tax credit permanent, the think tank said in a report released today, echoing similar calls from technology trade groups and vendors.

"The R&D credit ... is an important tool for boosting innovation and competitiveness and creating higher wage jobs," wrote Robert Atkinson, the report's author and ITIF president. "Growth in the 21st century is driven in large part by innovation, much of it born of investments in research."

Congress has temporarily extended the R&D tax credit 11 times since 1981, and it has expired twice, but 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 tech groups have argued the piecemeal approach to the credit makes it difficult for companies to plan their R&D budgets.

"The uncertainty over the credit's existence adds risk to the already risky research investments made by companies and it reduces its effectiveness," Atkinson wrote. "Relative to the increased productivity, innovation and overall growth that a more generous R&D tax credit would bring, the benefits of modestly lower interest rates that a small budget deficit might bring would be minimal."

In the late 1980s, the U.S. had the "most generous" treatment of R&D expenses among the 30 nations that are members of the Organisation for Economic Co-operation and Development (OECD), Atkinson said. But by 2004, the U.S. had fallen to 17th, according to OECD statistics. Atkinson's proposals would move the U.S. up to about sixth among OECD countries, he said.

In addition to making the credit permanent and expanding the credit percentage, Atkinson called on Congress to expand an alternative credit program, to create a 40% credit for collaborative research companies do with other firms or universities, and to speed up the depreciation schedule for R&D equipment.

Atkinson's report also addresses arguments against an expanded tax credit. Addressing criticisms that the tax credit amounts to a subsidy for large businesses, Atkinson said the benefits to the U.S. economy overall are significant.

"By encouraging greater public and private investments in research, government policy can play an important role in spurring economic growth and enhancing U.S. competitiveness," he wrote. "The time has come .... for a significant expansion of the credit to help the United States meet the new global competition."

Copyright © 2007 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon