Monday, September 6, 2010

Obama to Pitch Permanent Research Tax Credit

By JACKIE CALMES | September 4, 2010

WASHINGTON — As part of his pre-election push to spur the slumping economy and his party, President Obama this week will ask Congress to increase and permanently extend a popular but costly tax credit for businesses’ research expenses, and to pay for it by closing other corporate tax breaks, according to administration officials.

Mr. Obama is planning to outline the $100 billion proposal on Wednesday in a speech in Cleveland on the economy. The White House chose the venue partly to draw a contrast with a recent economic address there by Representative John A. Boehner of Ohio, the House Republican leader who would probably become House speaker should his party win a majority in November.

Besides seeking a permanent research credit, Mr. Obama will call for expanding the simpler of two credit options available to businesses. He would increase that to 17 percent from 14 percent.

The research credit, which has existed in some form since 1981, has strong bipartisan and business support. Yet the prospects for Mr. Obama’s proposal are unclear. Congress returns from a break in mid-September but will be in session only a few weeks before leaving for midterm election campaigning. Also, Republicans do not want to give Democrats boasting rights to legislative victories, even for a proposal like this one, which Republicans have long espoused.

And there is the issue of the credit’s cost. It has always been passed as a temporary credit because of the revenue losses; Congress has extended it 13 times for as little as six months, and the uncertainty has long vexed businesses. It lapsed after 2009, and a proposal to renew it for this year is pending in the Senate.

Making the credit permanent would cost an estimated $85 billion over 10 years, and expanding it would cost $15 billion more, according to the administration.

Doing so, however, would end one of the longest-running budget gimmicks in town: Presidents and Congresses of both parties have called for a permanent extension but ultimately kept it temporary to reduce deficit projections. Based on that history, the Treasury would probably give up as much as $100 billion in the coming decade in any case.

Under Democrats’ pay-as-you-go law, however, the full 10-year cost would have to be offset by other savings. Mr. Obama will propose that Congress adopt some of the provisions proposed in his annual budget to close corporate tax loopholes.

Most of them, which would apply to multinational corporations’ overseas income and to oil and gas companies, among others, have languished in Congress because of business opposition. In effect, the administration is asking business groups and their Republican allies to choose at a time of high deficits which breaks they prefer; the research credit has long been a priority.

A group of corporations recently told Senate leaders they would accept an end to some of the tax breaks protecting overseas profits in return for other incentives, notably the research credit.

“The R&D tax credit creates high-wage American jobs,” the United States Chamber of Commerce says on its Web site, because at least 70 percent of the tax benefits are attributable to salaries for those doing the research, and only research done in the United States is eligible.

Mr. Obama, in his weekly address on Saturday, said more must be done to help the middle class and “to accelerate job creation.”

“The steps we have taken to date have stopped the bleeding,” he said, by using infrastructure investments, subsidies to states to retain teachers and first responders, tax cuts and loans for small business.

“We also ended a tax loophole that encouraged companies to create jobs overseas,” he added. “Instead, I’m fighting to pass a law to provide tax breaks to the folks who create jobs right here in America.”

Other stimulus proposals that Mr. Obama and Congressional Democrats are pushing are aimed at helping small-business owners, a favorite constituency for both parties at election time. The research credit mostly benefits large corporations.

The Government Accountability Office, which does research for Congress, said that 549 corporations with receipts exceeding $1 billion claimed more than half of the net $6 billion value of the credit in 2005, the last year for which data was available.

Critics argue that businesses get tax breaks for research they would do anyway, and the credit has been a subject of disputes between corporations and the I.R.S.

The G.A.O. proposed reforms to simplify the credit and improve the incentive for businesses to do new research. Some of the ideas are reflected in the changes that Mr. Obama will propose.

1 comment:

  1. They need to pass the R&D tax credit for next year. In fact, they need make it permanent. This is crazy. It is too easy to send R&D offshore these days. I check technologytax.com nearly every day hoping that I will see that the research tax credit has been made permanent. Nothing yet.

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