Tech Tax Credit Stalls Again in Congress

Tech's much-coveted R&D tax credit finally wins approval of both House and Senate but how to pay for the credit derails the effort before it can be sent to the White House. The R&D tax credit, which has expired, has blocked U.S. businesses from assuming the credit in their 2008 financial reporting results or in forecasting project costs.

Both the U.S. House and Senate have approved a two-year renewal of the expired R&D tax credit that the IT industry holds dear, but differences still remain before the bill can be sent to the White House for President Bush's approval.

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 two chambers remain divided over how to budget for the credit, which has expired 13 times since the tax credit was created in 1981.

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.

"They shouldn't have the arrogance of saying they aren't even going to look at it," House Ways and Means Chairman Charles Rangel, D-N.Y., said.

The R&D tax credit, which most recently expired in January, meanwhile remains hostage to the larger tax bill.

"We applaud House leaders in both parties for backing a two-year extension, and call on them to work with their colleagues in the Senate to swiftly resolve the details," Information Technology Association of America President and CEO Phil Bond said in a statement. "While the House and Senate debate budget process, the message received by American companies is 'take your R&D elsewhere.'"

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.

The tax credit can cover up to 20 percent of qualified R&D spending.