If your business regularly files for research and development tax credits, you may already be aware that the federal credit expired yet again at the end of 2013. We at TCA anticipate that the federal credit will be renewed for 2015 and will also be extended retroactively for 2014, as has always happened in the past, despite the current gridlock and partisanship in Congress. Politicians on both sides of the aisle recognize that tax credits that encourage and reward technical development are crucial in helping American companies to keep pace with global innovation and competitiveness. In fact, political support for making the program permanent continues to grow.

Why do we need to expand the research and development tax credit program? The United Stated lost close to one-third of its manufacturing jobs from 2000 to 2011. In addition, investments by foreign companies looking to build offices or factories in America declined an average of six percent per year during that span. As a result, innovation-based competitiveness has sharply declined, leaving America ranked as forty-third in a list of forty-four nations for “rate of progress” in innovation. [1]

While these numbers may seem downright scary, it is widely recognized that a stronger and more permanent federal research credit program would make a significant difference. Since research and development tax credits were first implemented in 1981, each dollar of credit has led to at least one dollar of additional R&D spending. Essentially, the program pays for itself, and helps offer a strong incentive for US-based companies to continue funding innovation here, rather than sending such work off shore or forgoing technical development altogether. Improved support for these activities would spur greater levels of investment and innovation, leading to more and better jobs here at home.

Other countries offer similar incentives, and in comparison, the United States ranks only 27th in generosity of R&D incentive programs for domestic companies. In many cases, U.S. companies maximize their benefits at around 6.5% of Qualified Research Expenditures, far below incentives offered by some global competitors. For example, the Canadian research and development program offers 20 cents on the dollar for R&D conducted by larger companies inside of Canada, and 35 cents on the dollar for smaller start-ups (known in Canada as CCPCs, or Canadian Controlled Private Corporations). Moreover, the current U.S. program continues to expire every few years and therefore is not as reliable an incentive for prospective planning as a permanent program.

The hard-working people in our manufacturing and technology sectors deserve better. TCA continues to support an expanded federal tax credit program.

[1] “The Race America Must Win” by Robert Atkinson


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