The two leaders of the Senate Finance Committee have introduced legislation to make the simplified research and development tax credit permanent.
The bill, introduced Monday by Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking Republican member Orrin Hatch, R-Utah, aims to boost innovative American industries and spark economic and job growth in the U.S. The bill would allow businesses to count on the credit for long term research projects and provide an incentive for them to make job-creating investments.
President Barack Obama has also called for making the R&D tax credit permanent. The Baucus-Hatch proposal, known as the Greater Research Opportunities with Tax Help Act of 2011, or GROWTH Act, is co-sponsored by eight other Senators.
“By giving businesses a leg up on the competition in this global economy, we can help them grow and create the jobs American families need,” Baucus said in a statement. “Our workers are facing competition from countries across the globe, so this boost to innovation and research here at home is critical to our economy. Making the research and development tax credit simple and permanent gives innovative American businesses the certainty they need to make job-creating investments and the ability to compete in markets across the globe.”
Under current law, the R&D credit can be figured using two methods: a traditional credit and the alternative simplified credit, both of which provide U.S. firms a tax credit for incremental qualifying research expenses, such as labor and equipment costs. However, the traditional credit is considered outdated and has drawn criticism for the compliance burden it places on both taxpayers and the IRS.
The GROWTH Act would simplify and update the research credit by significantly raising the value of the alternative simplified credit from 14 percent to 20 percent of average qualifying research expenses and allowing the traditional credit to expire at the end of 2011.
The Baucus-Hatch proposal would also make the simplified R&D credit permanent, giving businesses certainty and eliminating the threat of expiration. Since the credit was created in 1981, Congress has had to extend the credit 14 times, sometimes after the credit had already expired.
“A permanent R&D tax credit rewards innovation and entrepreneurship, and gives American businesses the certainty they need to invest, grow and hire,” said Hatch. “This legislation makes sense, has strong bipartisan support and is essential to ensuring our nation’s job creators have the tools they need to compete around the world.”
The Government Accountability Office issued a report on the R&D tax credit in 2009, at the request of Baucus and Hatch, which recommended simplification and a permanent extension.
The head of a technology industry advocacy group praised the bill. “R&D is the lifeblood of our industry and the R&D tax credit is an important cornerstone to spurring further American innovation. Simply put, a stronger, permanent R&D credit equals more American jobs," said TechAmerica president and CEO Phil Bond. "The on-again, off-again nature of the current credit doesn’t allow companies the opportunity to do the long term planning necessary to take full advantage of the credit and we commend Senator Baucus and Senator Hatch for their leadership in taking this important step to make it permanent."
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