Drugmakers, chemical manufacturers, and other businesses are welcoming a May 20 vote by the House of Representatives to revive the tax credit for corporate research and development. The move would make the credit a permanent feature of the federal tax code.
The R&D credit is one of the most popular of the dozens of temporary tax breaks that Congress routinely renews every year or two, often retroactively at the end of the session. Industries that use the credit say the uncertainty this creates makes it difficult to effectively plan and conduct R&D projects.
“The U.S. tax system must evolve in order to provide globally competitive R&D incentives that can be counted on by businesses,” says the R&D Credit Coalition, an industry group. “The certainty of a strengthened, permanent credit is critical to maintaining U.S. leadership in advanced research and encouraging companies to spend R&D funds and create jobs in the U.S.”
The coalition represents a broad array of trade groups and companies in sectors including biotechnology, chemicals, pharmaceuticals, and energy.
The legislation (H.R. 880) approved by the House would reauthorize the R&D tax credit on a permanent basis, retroactive to Dec. 31, 2014. The measure would also increase the value of the credit from 14% to 20%. The bill now goes to the Senate for consideration.
“We strongly support making the R&D tax credit a permanent part of the tax code, not subject to yearly extensions, as it has played a vital role in supporting the search for cures and breakthrough medicines,” says James C. Greenwood, CEO of the Biotechnology Industry Organization (BIO), a trade association.
Making the credit permanent would help companies estimate their tax liability and remove “the constant uncertainty regarding whether or not the R&D tax credit will be extended,” Greenwood adds.
Many specialty chemical companies also rely on the R&D tax credit to help them remain competitive in the global marketplace, says William E. Allmond IV, a vice president at the Society of Chemical Manufacturers & Affiliates, an industry trade group. “One of our members told House staffers that 20% of their workforce is involved with R&D, and 8 to 10% of company sales are used for R&D,” Allmond says.
Although the tax credit enjoys bipartisan support in Congress, President Barack Obama has threatened to veto H.R. 880. He argues that it would increase the federal deficit by more than $180 billion over a decade because the bill’s sponsors have no plan to offset the tax revenue that would be lost.
The White House accused House Republicans of “imposing a double standard by adding to the deficit to continue and expand costly tax breaks, while slashing investments and programs that serve middle-class and working Americans in the name of fiscal rectitude.”
Many congressional Democrats want to extend the credit, but only if the cost is offset by spending cuts.