R&D Tax Fight Turns into a Partisan Brawl

We should move forward with pro-growth, tax policy changes that already have bipartisan support, says Robert Atkinson.

White House Threatens Veto in Clash over R&D Tax Credit

Financial Times
U.S. companies are doing more and more R&D offshore, one reason why is cost – not just labor cost – but also tax cost, says Robert Atkinson.

Why The Tax Reform Act of 2014 Should Expand, Not Cut, The R&D Tax Credit

April 14, 2014
| Reports

R&D is a key driver of U.S. productivity growth, innovation and competitiveness. However, relative to societally optimal rates companies underinvest in R&D, which is why since 1954 companies have been able to deduct R&D costs immediately rather than depreciating them, and why since 1981 companies have been able to take a tax credit for R&D expenditures. Unfortunately, the Tax Reform Act of 2014 proposed by House Ways and Means Chairman David Camp (R-MI) would not only significantly reduce tax incentives to invest in R&D but would disqualify R&D expenditures toward software development from the credit.

These changes, if enacted, would reduce the tax incentives for performing R&D in the U.S. by approximately $20 billion per year, raising the effective tax rate of R&D-performing companies. It would also reduce R&D performed in the United States by at least $25 billion annually, which would in turn reduce productivity growth by an estimated 0.18 percent per year going forward. Finally, eliminating the credit for R&D on software, an activity that many industries not just software engage in, would change the allocation of R&D across types of research, negatively impacting innovation. 

The United States cannot afford to be indifferent to where R&D is performed. Given the fact that 26 nations already provide more generous tax treatment of research, these changes will lead to relatively less global R&D being performed domestically, with the negative effects on the economy and jobs to follow. To be sure, America needs sensible reforms that lower corporate tax rates, but these steps should be taken while maintaining, or even expanding, proven incentives to invest such as the R&D tax credit.

America Needs Corporate Tax Reform

April 3, 2014
| Blogs & Op-eds

Corporations have more choices today about how to structure their organizations and finances, where to locate their headquarters and operations and how to send profits to shareholders. All of this will make tax collection more difficult. Other countries are competing for this high-value-added production and jobs by lowering their corporate tax rates. The United States must follow suit.

To Stay Innovative, We Have to Reward Research

Tacoma News Tribune
Tax incentives can and should be used to incentive investment in R&D says Robert Atkinson.

Congress Should Extend Bonus Depreciation

March 26, 2014
| Blogs & Op-eds

A new blog by ITIF urges Congress to extend bonus depreciation through at least 2014. It makes little sense to increase the cost of investment when economic growth is still below its potential.  American companies already face high statutory and effective income tax rates. Bonus depreciation encourages companies to purchase additional equipment, which in turn boosts productivity. It also increases the chance that companies will actually experience higher revenues before having to pay tax on their accounting “profits.” 

Assessing U.S. Corporate Tax Reform in an Age of Global Competition

March 24, 2014
| Reports

Over the past two decades other nations have steadily lowered their corporate tax rates to the point where the United States now has the highest statutory rate in the world.  But we also have a very high effective rate relative to our competitors.  Moreover, unlike most nations, the United States taxes companies on world-wide income. To top it off, we ranks 27th in the generosity of our research and development tax credit. This report explains the basic issues involved in tax reform and documents how the United States has fallen behind in the global competition to attract and retain business activity. It summarizes the growing literature on the link between tax rates and investment and economic growth as well as the effectiveness of the R&D tax credit in incentivizing additional private research with large social spill-over benefits. Corporate tax reform is one of the most important things Congress can do to grow the economy.

The report makes the following points and recommendations:

  • The United States faces intense competitive pressure in keeping and attracting corporate investment and the jobs that come with it. This new competition limits the degrees of freedom policymakers have in crafting corporate tax policy.

  • Both U.S. statutory and effective corporate tax rates are significantly higher than those of most other countries.

  • The current policy of taxing the worldwide profits of U.S. companies puts them at a disadvantage when competing for world markets.

  • Although lowering the statutory rate is important, it is even more important to lower the effective rate. This is best done by expanding the few tax provisions, such as the R&D tax credit and accelerated depreciation, which clearly cause companies to expand investment, while also lowering the statutory rates.

  • Congress can pay for a reduction in the effective corporate tax by raising taxes on the individual side, through means such as a carbon tax, a value added tax, and/or taxing dividends, carried interest, and capital gains as normal income.

Reforming U.S. Corporate Taxes for a Globally Competitive Age

ITIF Debate: Congress Should Retain and Expand the R&D Tax Credit

February 26, 2014 - 9:00am - 10:30am
Information Technology and Innovation Foundation
1101 K St. NW
610 A

In 1981, the federal government established the research and experimentation (R&D) tax credit. Today, with Congress considering comprehensive corporate tax reform some have argued that Congress should jettison the credit and use the savings to pay for statutory rate reduction.

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