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The U.S. House approved the Senate Wall Street bailout bill Oct. 3 and, in the process, finally bumped the expired research and development tax credit to the White House. Strongly supported by the technology sector, the two-year, $14 billion tax credit was
The $700 billion Emergency Economic Stabilization Act was approved on a 263-171 vote. The “tax extenders” provision of the bill that includes the R&D tax credit adds another $108 billion to the ticket. The legislation also increases the Federal Deposit Insurance Corporation coverage of bank deposits from $100,000 to $250,000 and places a freeze on the expansion of the Alternative Minimum Tax.
Without the incentives added by the Senate, the House defeated the rescue legislation Sept. 29 and sparked a 778-point free fall of the Dow.
“Extending the R&D credit is a must–particularly in this environment. Leaving town without a two-year extension is an invitation to companies to take their R&D–and related jobs–to foreign shores,” ITAA President and CEO Phil Bond said before the House vote.
The R&D tax credit, which expired in December for the 13th time since Congress first authorized the tax break in 1981, covers up to 20 percent of qualified research and development spending and is considered vital to innovation by the technology sector. Although popular with lawmakers, the credit has been held hostage to a larger tax bill pending before Congress.
In the nine months since the R&D tax credit expired, U.S. businesses have been unable to assume the credit in their 2008 financial reporting results or in forecasting project costs. ITAA has estimated that the lapse of the R&D credit has placed at risk more than $13 billion and over 10,000 jobs.
When Congress originally passed the R&D tax credit, the United States put into place one of the most attractive R&D tax incentive programs in the world. Since then, as Congress approved one extension after another, global competitors have passed more generous incentives in hopes of luring U.S. companies. The United States now ranks 17th of the 30 countries in the Organization for Economic Co-operation and Development in offering R&D tax credits.
Both the U.S. House and Senate had already approved a new, two-year renewal of the expired R&D tax credit, but differences still remain between the two chambers on how to pay for the estimated annual $7 billion cost of the credit.
Following a 93-2 vote by the Senate Sept. 24 to renew the tax credit as part of a $60 billion larger package of tax extension bills, the House followed suit on Sept. 26 but made changes in the Senate version.
Read about changes in the Senate version here.
The House insists that tax relief should be paid for by increasing revenues so as to not increase the budget deficit. The White House says it opposes increasing taxes on others to extend the breaks.
Unlike the Senate version, the House bill pays for the tax breaks by imposing limits on oil industry tax breaks and tightening loopholes allowing for overseas tax write-offs. The White House has signaled it will sign the Senate version of the legislation but will veto any tax bill with the oil industry offsets.
In the version approved Oct. 3, the Senate version prevailed.