Senate Approves Extension to Expired R&D Tax Credit

The U.S. Senate has approved an extension to an expired R&D (research and development) tax credit sought by many tech vendors.

The Senate, late Tuesday, passed the extension of the R&D tax credit after adding it to the Renewable Energy and Job Creation Act, which the U.S. House of Representatives passed in May. The House will have to approve the Senate version of the bill before it can go to U.S. President George Bush for his approval.

The tax credit, expired since December, can cover up to 20 percent of qualified R&D spending. It has expired 13 times since 1981, despite calls by tech, pharmaceutical and manufacturing groups to make the tax credit permanent.

Lawmakers have resisted making the tax break permanent largely because its price tag of about US $7 billion a year. Some critics have called the tax credit a government subsidy for large businesses.

The Senate bill, which passed by a 93-2 vote, included clean energy tax incentives, a revamp of the alternative minimum tax paid by individual taxpayers and other extensions of expiring tax cuts. The clean energy tax incentives earned praise from TechNet, a network of tech CEOs, which said that green energy represents a huge economic opportunity for the U.S.

"These tax measures represent real support for the American families, workers, and businesses that need a break now," Senator Max Baucus, a Montana Democrat and chairman of the Senate Finance Committee, said in a statement. "Businesses need provisions like the R&D tax credit to innovate and grow."

In recent weeks, tech trade groups have renewed their push for the tax credit to be extended, with Congress in session for only a few more weeks this year.

The Information Technology Industry Council (ITI), a tech trade group, praised the Senate for passing the bill. "Given the historic economic uncertainty facing our nation, we should be doing all we can to encourage innovation and spark job growth in the U.S.," Ralph Hellmann, ITI's senior vice president for government relations, said in a statement. "It's time for the House to act and pass this legislation right away."

Earlier this month, R&D tax credit supporters sent a letter signed by more than 3,400 U.S. R&D workers from 123 companies to all members of Congress.

The lack of an R&D tax credit could mean that U.S. R&D jobs are sent overseas, the letter said. "Simply put, we are dismayed that Congress has allowed the R&D tax credit to expire," the letter said. "The signatures you see on this letter represent just some of the tens of thousands of real people who have benefited positively from the effects of the credit over the past 26 years. ... We are living proof that the vast majority of R&D credit dollars go directly to pay the wages of highly skilled American workers."

Without the tax credit, it's difficult for companies to plan their R&D budgets, said Sarah Barber, an engineer with Rockwell Collins, an aviation electronics vendor based in Cedar Rapids, Iowa.

R&D is an "essential part" of the success for companies like Rockwell Collins, said Barber, one of the workers who signed the letter to Congress. "It's very important to be able to differentiate yourself from your competitors," Barber said.

Without the tax credit, many U.S. companies will have to make tough choices, with some sending R&D work overseas, Barber added.

In addition to extending the R&D tax credit until the end of 2009, the Senate bill would increase the percentage of R&D spending covered from 12 percent to 14 percent under one way of claiming the credit.

Nearly 18,000 U.S. companies used the R&D tax credit in 2005, ITI said. About 70 percent of the tax credit is used for R&D employee wages, it said.

Subscribe to the Business Brief Newsletter

Comments