Treasury: Make R&D credit permanent

The Obama administration’s proposal to expand, simplify and make the research-and-development tax credit permanent would pour roughly $106 billion into the private sector over a decade, the Treasury Department says.

In a report released Friday, the department also said that a permanent expanded credit would support nearly 1 million domestic jobs and that it should survive any overhaul of the corporate tax code.  

The study also asserted that the R&D credit currently creates a dollar-for-dollar boost in research spending, and that making the credit permanent would have at least that same effect. 

“Research shows that the R&D credit is a cost-effective way to encourage research,” the report says. “However, uncertainty about the future availability of the credit diminishes its incentive effect because it is difficult for taxpayers to factor the credit into decisions to invest in research projects that will not be initiated and completed prior to the credit’s scheduled expiration.”

The R&D credit is scheduled to run through this year, after being retroactively extended during last year’s tax-cut compromise. In all, it has been extended 14 times in its roughly three decades. 

The idea of expanding the credit has been popular across party lines in Washington, even though some reports have asserted that the credit often goes to companies that were going to conduct research regardless. 

In his fiscal 2012 budget, President Obama proposed increasing the alternative simplified R&D credit from 14 percent to 17 percent. For its part, a bipartisan group of House members has gone even further, introducing legislation to bump that credit to 20 percent. 

According to the Treasury report, corporations claimed roughly $8.3 billion in research credits during 2008 – with 70 percent of that coming from the manufacturing sector. Michael Mundaca, the assistant Treasury secretary for tax policy, has indicated that the White House’s fiscal 2012 budget raises enough revenue to cover the costs of expanding the credit, Reuters has reported. 

The report was released the same day Treasury Secretary Timothy Geithner headed to Arkansas, where he is scheduled to tour a local manufacturer.