Congress should reduce uncertainty by making the R&D tax credit permanent.
R&D tax incentives in virtually all nations except the United States are permanent features of the tax code. Since its enactment in 1981, the R&D tax credit has been extended eleven times and expired three times. The uncertainty over the credit’s existence adds risk to the already risky research investments made by companies and reduces its effectiveness. One OECD study found that the less stable and more uncertain the credit is, the less likely it is to have a positive effect on stimulating R&D. One reason Congress has not made the credit permanent is because the expenditures must be scored for five years, raising the budgeted cost. While extending the credit each year does not lower its actual cost significantly, it does allow the costs to be passed on to next year’s budget.