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Science Policy: R&D Tax Credit, Law To Support R&D Up For Renewal

by Glenn Hess , Andrea Widener
January 27, 2014 | A version of this story appeared in Volume 92, Issue 4

More than 50 tax incentives expired at the end of 2013, including an R&D tax credit that allowed companies to write off up to 20% of those expenses.

Lawmakers often let the temporary tax breaks lapse and then renew them retroactively for one to two years. For example, Congress has extended the research credit more than a dozen times since it was created in 1981.

But the chemical, pharmaceutical, and other research-intensive industries complain that Congress is making it impossible for them to plan ahead. “The uncertainty of an on-again, off-again credit influences companies’ future R&D budgets, particularly when manufacturers are courted by other countries with more generous and permanent R&D tax incentives and lower corporate tax rates,” says the R&D Credit Coalition, a diverse group of manufacturers.

To avoid the year-to-year dilemma, the coalition is urging Congress to make the R&D credit a permanent part of the corporate tax code and to increase its value. Two pieces of legislation introduced in the House of Representatives in December would accomplish this task.

Both of the bills are sponsored by California Democrats, and both would make the R&D tax credit permanent. Where the proposals differ is in their treatment of a simplified formula for calculating the credit, which most companies now use.

Rep. Scott H. Peters’s legislation (H.R. 3757) would increase the value of the Alternative Simplified Credit from 14% to 20%, making it commensurate with the more complex traditional credit for basic research. Rep. Julia Brownley’s bill (H.R. 3640) would boost the alternative credit to 50% of qualified expenses.

Despite the business community’s strong support for the R&D incentive, William E. Allmond IV, vice president of government relations at the Society of Chemical Manufacturers & Affiliates (SOCMA), a specialty chemical companies trade group, notes that many Senate Democrats and House Republicans have indicated that they would rather work on comprehensive tax reform than on extending temporary credits in the existing tax code.

Reauthorization of the America Competes Act, which fosters U.S. global competitiveness, is also likely to be on the congressional agenda for 2014. Democrats and Republicans in the House late last year circulated competing discussion drafts of bills to reauthorize the law, and the full bills could be introduced soon.

The bipartisan law—which expired in October 2013—had set an ambitious goal of improving the nation’s global competitiveness by doubling funding for the National Science Foundation, the National Institute of Standards & Technology, and the Department of Energy’s Office of Science, among other things. That increased funding goal is not expected to be part of the reauthorization this year.

Senate and House Democrats seem to be leaning toward a reauthorization bill similar in scope to the recently expired law. House Republicans, however, have discussed possibly splitting America Competes into two bills—one to focus on Office of Science programs and the other on NSF and NIST programs. A discussion draft from Republicans also included a controversial provision that would add layers to NSF’s peer review process for grants. It is unclear which provisions will be in the introduced legislation.

Immigration reform is another area expected to see action this year. The first bipartisan immigration legislation in decades passed the Senate last year. But House Speaker John A. Boehner (R-Ohio) has yet to bring the measure to the House floor, saying it lacks enough Republican support to pass.

Observers say this year Boehner might introduce a series of bills from broadly popular parts of the Senate’s proposal. Among the possibilities is legislation to make it easier for companies to hire temporary science, technology, mathematics, and engineering (STEM) workers from overseas and make it easier for U.S.-educated STEM workers to stay in the country after graduation.



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