The renewal of the lapsed research and development tax credit now finds its fate tied to the U.S. Senate Wall Street bailout bill currently scheduled for a vote after the market closes on Oct. 1. Senate and House negotiators hope the addition of a two-year renewal of the R&D tax credit and other business tax breaks will help sweeten the deal for House Republicans who blocked the bailout bill Sept. 29.
In addition to the R&D tax credit, negotiators added to the Emergency Economic Stabilization Act an increase from $100,000 to $250,000 in Federal Deposit Insurance Corporation coverage of bank deposits. The bill includes a freeze on the expansion of the Alternative Minimum Tax.
“This is the right thing to do,” said Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee.
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 have 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. 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.
Following the Sept. 26 House vote, House lawmakers considered two alternatives, but the House withdrew the proposals when it became clear Republicans would not support the legislation.