US Senate rubberstamps R&D tax credit

The US Senate has approved extending an expired tax credit for business research and development, a spending incentive that many American tech companies have come to rely on.

The R&D credit was renewed late Tuesday after being attached to the Renewable Energy and Job Creation Act, which earlier was passed by the US House of Representatives in May. The House must now approve the Senate-modified version of the bill before it goes to the President to be signed or vetoed.

Lawmakers have authorized annual extension of the research credit since it began in the early 1980s. It has been allowed to expire a total of 13 times over the years, however, prompting many in the tech industry to call for making the research spending relief permanent.

The credit, presently left to lapse since December, can cover up to 20 per cent of certain R&D spending by tech, manufacturing, and pharmaceutical firms. Those companies claim the funding dry periods lure research jobs overseas to countries where R&D tax incentives are better committed.

An outspoken supporter of the tax credit is Intel chairman Craig Barrett. At his opening keynote at Intel's Developer Forum in August, Barrett had choice words for Washington for allowing the program to lapse.

"Our government refuses to recognize investment in the future is essential," he said.

Meanwhile, opponents argue the tax credit amounts to no less than a government subsidy for large businesses. This claim strikes a particular cord against current negative reactions to government bailouts of US financial institutions — worrying many in the tech industry that the credit will be placed under much closer scrutiny this time around.

The Information Technology Industry Council lobby group applauded the Senate approving the measure.

"Given the historic economic uncertainty facing our nation, we should be doing all we can to encourage innovation and spark job growth in the US," said Ralph Hellman, ITI veep of government relations in a statement. "It's time for the House to act and pass this legislation right away."

The Renewable Energy and Job Creation Act also provides about $18bn of tax incentives for investment in renewable energy, energy efficiency, and conservation. Riding along is extensions of approximately $27bn of expiring temporary tax provision.

If passed, the extension of R&D credit will be extended until December 31, 2009. The proposal is estimated to cost $8.76bn over 10 years. ®