Ways and Means Democrats Introduce Extension of Research and Development Tax Credit

Measure Part of “No Excuses” Jobs Agenda 

Ways and Means Committee Democrats today introduced legislation to extend the Research and Development Tax Credit through 2012, the latest bipartisan measure Committee Democrats have unveiled as part of their No Excuses agenda to encourage Republicans to finally act on jobs legislation. The R&D Tax Credit – a 20 percent credit for certain research expenditures -- expired at the end of 2011, despite its proven effectiveness and broad bipartisan support. The legislation, the Investing in American Innovation Act of 2012, would provide an incentive to companies to invest in research at the level that is most beneficial for the overall economy. In 2009, the last year for which data is available, more than 12,000 firms claimed the R&D Credits related to nearly $100 billion in qualified research expenses. The measure is paid for by limiting treaty shopping and ending the special depreciation for corporate jets. (Summaries below).

The Investing in American Innovation Act of 2012 is the fourth measure introduced in recent weeks as part of the No Excuses agenda as Democrats seek to encourage Republicans to finally act on measures to spur job growth. Other bills in the package include the Wind Powering American Jobs Act, the Hire Now Act and the Invest in America Now Act.

“Instead of ‘signaling’ to American workers that they prefer wasting time on bills to nowhere – like this week’s repeal vote – Republicans should get to work on real jobs legislation,” said Ways and Means Committee Ranking Member Sander Levin (D-MI). “This legislation and the other bills in the No Excuses agenda are meant to give Republicans the opportunity to finally turn their focus toward job growth by bringing up bills that will boost the economy and have broad bipartisan support.”

“As we are still fighting to get our economy back on track, the R&D tax credit will encourage companies to invest in research that will help them and the country as a whole,” said Rep. Charles B. Rangel (D-NY). “It will advance our short-term and long-term goals to create more jobs. There's no excuse to reject this bill. I urge all my colleagues to support this bipartisan jobs-spurring legislation.”

“We’ve now introduced four bi-partisan bills in four weeks without any action by the Republicans,” said Rep. Jim McDermott (D-WA). “These bills have broad bi-partisan support and have been proven to help businesses and strengthen the economy.  This legislation is no different.  Businesses across the country, and many in my district like Microsoft and Boeing, rely on this credit to produce the most innovative products in the world.  Failure to pass this bill is again, yet another indication that the Republican leadership is more interested in playing politics than strengthening America’s economy.”

“Extending the R&D tax credit will provide American businesses increased certainty and a greater ability to invest in themselves and grow,” said Rep. Ron Kind (D-WI).  “The credit will allow established businesses – large and small -  entrepreneurs and start ups to facilitate technological improvements, continue to innovate, create jobs, and better compete in the global economy.  Extending this tax credit is a commonsense, long-term investment in America’s future.”

“Supporting Nevada's small businesses by making sure they have the tools they need to hire more employees is a top priority,” said Rep. Shelley Berkley (D-NV). “That's why I support this common sense bill to extend the R and D tax credit for another year, giving small businesses the certainty they need to create more jobs in Nevada and across our nation.” 

“We must do all we can to encourage American businesses to invest, grow and create new jobs, and these tax credits will help give businesses the certainty to do just that,” said Rep. Joe Crowley (D-NY). “Our nation’s economy was founded on American ingenuity and innovation. And, in order to keep the U.S. competitive in today’s global economy, we must continue to make strides. I urge my colleagues to join us in supporting this bipartisan legislation to extend the R&D tax credits.”  

Summary of the Investing in American Innovation Act of 2012:

Extending the R&D Tax Credit

The bill would extend through December 31, 2012 the 20 percent credit for certain research expenditures (as well as the 14 percent Alternative Simplified Credit) which expired on December 31, 2011.  The research credit, which enjoys broad bipartisan support, is intended to provide an incentive to companies to invest in research at the level that is most beneficial for the overall economy.  In the absence of the credit, there may be a tendency to invest too little in research activities that benefit the country as a whole, in addition to the taxpayer making the investment.  In 2009, over 12,000 firms claimed R&D Credits related to nearly $100 billion in qualified research expenses. 

Limiting Treaty Shopping

Under current law, certain payments (principally dividends, interest, and royalties) made by US-based entities to a parent company based overseas are subject to a 30 percent withholding tax.  That requirement customarily is reduced or eliminated when the payment is made to a country with which the US has a tax treaty.  

Companies with parents based in tax haven countries are able to effectively bypass the withholding tax by routing payments through an affiliate in a tax treaty country, which then transfers the funds to the parent company.  The provision would limit this practice by retaining the withholding tax on certain deductible payments (principally interest and royalties) to a foreign-based affiliate unless the tax would be reduced under a treaty if the payment were made directly to the company’s parent corporation.

Ending Special Depreciation for Corporate Jets

Business jets currently are depreciated over five years, while commercial aircraft are depreciated over a longer period (seven years).  The proposal would change the recovery period for business jets to that of commercial jets.  There is no reason that jets used for different purposes (general vs. commercial aviation) should have different class lives.