Tech Groups Call on Congress to Extend R&D Tax Credit

— -- More than 40 trade groups, many representing the IT industry, have renewed their calls for the U.S. Congress to extend a research and development tax credit that expires this month, saying the tax break protects U.S. jobs.

Groups including the Business Software Alliance, the Biotechnology Industry Association, the Information Technology Association of America, and the Information Technology Industry Council (ITI) said the tax credit is a critical piece of U.S. innovation. During a press conference on Wednesday and in a letter to congressional leaders dated Tuesday, the groups pressed Congress to extend the credit, which will expire for the 13th time since 1981 on Dec. 31.

"The credit for us is really a jobs issue," said Jay Timmons, senior vice president for policy at the National Association of Manufacturers. "The bottom line is, it's about keeping high-skilled, high-wage jobs in the United States."

Wednesday's press conference may have created a sense of deja vu for participants. Every year or two, the tax credit expires or comes close to expiring, and tech, pharmaceutical and manufacturing groups keep calling on Congress to extend the credit, which covers 20 percent of qualified R&D spending.

Several tech groups, including the American Electronics Association (AeA) and ITI, have called on Congress to make the tax permanent, but lawmakers have shied away from the price tag of about $7 billion a year. Some critics have called the tax credit a government subsidy for large businesses.

On Nov. 9, the U.S. House of Representatives passed a bill, the Temporary Tax Relief Act, that would extend the tax credit until Dec. 31, 2008. But the Senate has not yet acted on the legislation, and some Senate Democrats are pushing for lawmakers to find a way to pay for the cost.

But Senator Orrin Hatch, a Utah Republican, said raising taxes to pay for the credit isn't workable. "It would be ridiculous to have a permanent tax increase for a temporary R&D tax credit," he said at the Wednesday R&D Credit Coalition press conference.

Hatch also called for Congress to reform the R&D tax credit, phasing out the old way of calculating the credit in favor of another model already being used by many companies, called the alternative simplified credit.

Hatch said he's confident the current credit will get extended, but he told trade group members at the press conference not to expect a "miracle" in their efforts to make the tax permanent. "We have to fight for it every year," he said. "It's very hard for companies to do their planning."

Other countries are trying to lure companies away from the U.S. with more generous R&D programs, Timmons said. He held up a recent newspaper advertisement purchased by the Canadian province Ontario, touting its R&D tax incentives to U.S. companies.

The U.S. had the best R&D incentive program for several years, but now has fallen to 17th among the 30 member nations of the Organisation for Economic Co-operation and Development (OECD), press conference participants said.

"If the U.S. does not guarantee similar incentives, we will continue to see R&D activities, innovation and jobs moving offshore," said Christopher Hansen, AeA's president and CEO.