In a recent journal article, Rashkin provided the following example of how a revised tax credit should work: “Under this proposal, research on Apple’s first iPad would have easily qualified, but any succeeding models would not unless the improvements were very innovative in nature. Since the development of breakthrough products is usually costly and risky but at the same time provides the greatest benefit to the economy, the credit rate should be increased.”
Other incentives for product innovation and manufacturing investment should include lower tax rates for companies that develop and manufacture products in the US, Rashkin told Congress. “By providing this incentive to manufacturers and their suppliers, and by removing the [IP] tax haven advantage, we would reverse the foreign outsourcing trend and reinvigorate the US manufacturing industry,” Rashkin testified.
The R&D tax credit has been renewed several times since its inception in 1981. The technology industry has longed lobbied for a permanent extension. Sen. Max Baucus (D-Mt.), chairman of the Senate Finance Committee, along with ranking committee Republican, Sen. Orrin Hatch of Utah, have jointly proposed a permanent extension of the credit. The proposal also would increase the nominal tax credit from the current 14 percent of research expenses to 20 percent.
“Making this tax credit permanent will provide certainty, and it will help spur economic growth for generations to come,” Baucus said last fall.
Observers doubt whether any tax proposal could make it through the GOP-controlled House of Representatives in a presidential election year. “A bill that does not include making the Bush tax cuts permanent or a thousand other tax provisions” has no chance of approval in the House, one observer said.
As for the Obama administration, one manufacturing advocate notes, “It's not an uphill fight to get the [White House] economists to agree that the country needs to have manufacturing.”
This story was originally posted by EE Times.