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Renewal of R&D tax credit seems like sure bet after U.S. House vote

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Renewal of R&D tax credit seems like sure bet after U.S. House vote

Better than nothing—but barely.

That is how many lawmakers and business groups are reacting to a vote last night by the U.S. House of Representatives to retroactively revive a tax credit that allows companies to write off certain research expenses.

Backers of the so-called R&D credit, worth some $7 billion annually in recent years, had hoped this would be the year Congress finally made the 33-year-old tax break permanent—as many economic experts have long urged. But those hopes were again dashed by political infighting. Instead, Wednesday’s 378 to 46 vote will temporarily restore for 2014 the R&D credit and nearly 50 other tax breaks that expired earlier this year.

A bipartisan alliance of lawmakers had hoped to move legislation that revived many of the expired tax breaks through at least 2015 and to make several—including the R&D credit—permanent. Even the White House had embraced the idea, joining others who argue that businesses need certainty to make long-term plans for investing in research. Supporters also insist that the cost of the credit is more than offset by related economic gains.

There was even a rumored 11th-hour agreement between House and Senate leaders on such a strategy—until the White House threatened to veto any deal, in part because it did not include certain breaks for low-income taxpayers. With the current Congress set to adjourn as soon as the end of next week, lawmakers settled on a simple 1-year extension. If the House bill is approved by the Senate, as expected, it will mark the 16th time Congress has extended the R&D credit since it was created in 1981.

Bipartisan frustration with that outcome was obvious during the House floor debate on the measure.

“This place is dysfunctional,” said Representative Jim McDermott (D–WA). Congress should have acted on the tax credits “a long time ago, and done it permanently,” he said. “Businesses and individuals need to know what the tax is going to be in the beginning of the year so that they can plan and take advantage of incentives rather than waiting until the last 2 weeks of the year when the Congress may or may not act.”

“This is a lousy way to run a tax code. It is a lousy way to run a government,” said Representative Ron Kind (D–WI). “I think individuals and businesses, large and small, need greater certainty.”

Industry groups were disappointed, but still thankful that lawmakers didn’t blow a yearlong hole in the credit, as they did once in the 1990s, by letting it lapse completely. “They’ve produced a train wreck—again—but at least it is not as bad a wreck as it could have been,” one lobbyist for a high-tech group told ScienceInsider, asking for anonymity because the group has already begun enlisting lawmakers to protect the credit in 2015. “We’re pretty unhappy, but we don’t want to appear ungrateful.”

There will be a new push next year to make the credit permanent, perhaps as part of a much larger effort to reform and simplify the U.S. tax code. But finding a way to offset the estimated $100 billion to $150 billion in lost tax revenue won’t be easy.

McDermott, for one, was not optimistic about the prospects for a broader overhaul. “Everyone should take note of today, the third of December,” he said during the floor debate. “Next year, right about this time, we will be right back here with the same bill.”