At the end of 2013, the research and development tax credit expired, taking with it fuel for economic growth and hiring in the United States. Fortunately, with a new year comes new opportunity. In 2014, Congress should:
- make the research credit permanent
- make a portion of the credit refundable for small start-up ventures
- increase the credit percentage
Rare agreement in Congress
Unlike many other tax preferences, the research credit enjoys bipartisan support. Members of both political parties, sometimes in collaboration, have proposed expanding and making the credit permanent. President Barak Obama’s budget routinely seeks an increase in the research credit’s alternative simplified credit computation (ASC). In the current Congress alone, at least six separate bills have been introduced to enhance the research credit, and at least 29 were introduced in the last Congress. Those bills include proposals to:
- modify the credit to allow for a payroll tax credit for qualified small businesses
- permanently extend the research credit
- increase the percentage of qualified research expenses available under the credit
Competing with the world for talent and incentives
The research credit hasn't changed much since it was enacted as part of the Economic Recovery Tax Act of 1981. Yet research work – and the resources and talent that support it – have changed immensely in those 30-plus years. Opportunities abound not just in Silicon Valley, but also in Moscow, Berlin, Bangalore and Seoul. Many of the U.S.’s Organization for Economic Co-operation and Development (OECD) trading partners already recognize this, and the United States is falling behind.
In addition, other countries offer different types of R&D tax incentives. Those incentives include R&D tax credits, R&D tax allowances and payroll withholding tax credits for R&D-related wages, and income-based incentives that tax income from royalties and intangibles at a preferential rate.
If the United States wants to create and retain higher-paying jobs and remain front and center in technological and other advances – if we want to be the country that offers the world the next Apple, Google or Facebook
– we must make the credit permanent, more attractive to start-ups and bigger.
Download the PDF to read the entire Grant Thornton/TechAmerica report.
Learn more: What to do now about the federal R&D tax credit lapse