The Need
The federal tax code currently provides taxpayers a credit to offset the costs incurred in the U.S. for qualified research and development activities. The credit was first enacted in 1981, but only on a temporary basis. Since then, Congress has extended the credit 13 times, often retroactively. The credit is once again scheduled to expire after 2009.
The energy crisis our nation faces will be solved only if we commit to intensive R&D activities. For example, only with new research will we be able to discover more energy-efficient materials and better ways to power our factories, homes and automobiles. The credit has fostered such activities by companies of all sizes in America. Additionally, during this particularly volatile time for U.S. workers, more than 70% of the value of the credit goes to wages for high-skilled, high-paying jobs in the United States. Dow alone spends more than $1 billion annually in research worldwide.
When the R&D tax credit was first created, the U.S. had the distinction of providing the most generous tax treatment for research among all OECD nations. Today, that is not the case because the credit has been whittled away over the years due to our global competitors such as Canada, China, India, Japan and others that offer more aggressive R&D incentives. In fact, the U.S. has fallen out of the top 10 globally when measuring government incentives for private sector R&D. America risks a “brain drain” to these other countries, as top scientists chose to work in countries that place a higher value on their work.
Solution
- The R&D credit should be permanent. Unlike other temporary tax credits, the R&D credit is not designed to, and should not be allowed to, expire. Instead, only when made permanent will the true purpose of the credit — to encourage a greater level of R&D activities in the U.S. — be realized. When Congress makes the credit permanent, activities will expand in the U.S. to resolve our dual energy and climate crises, as well as other critical problems facing our country.
