Now’s the Time for a Permanent R&D Tax Credit

By making the on-again/off-again tax credit for research and development permanent, we could show the world that we’re serious about innovation.

Columns From: 7/26/2010 Modern Machine Shop, ,

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Derek Korn

Admittedly, I’m not a big fan of many of President Obama’s policies. However, there is one campaign promise with which I’m on board: making the R&D tax credit permanent. Now is the time to make that happen. Established in 1981, the R&D tax credit enables companies to take as much as a 14-percent tax deduction for select research costs. Back then, the credit helped drive R&D investment and very likely played a role in helping the country emerge from recession in the early ‘80s.

Unfortunately, the credit has expired and been reinstated numerous times over the past 29 years. Not surprisingly, it expired last year. It is currently part of HR 4213—the American Jobs and Closing Tax Loopholes Act of 2010. The bill, which as of early July remains hung up in Congress, would extend the credit to cover all of 2010. (Editor's note: HR 4213 was signed into law soon after this column was published.) Companies couldn’t plan on it, though, which has likely caused some to curtail their R&D efforts as it has in years past. Plus, who’s to say if it will be reinstated for 2011?

Establishing a permanent tax credit would eliminate R&D instability. Perhaps more importantly, it would demonstrate to the world that the United States is serious about fostering innovation. Given the global economic and manufacturing challenges we currently face, this is the right time to make such a firm commitment.

Clearly, shops should care because enhanced R&D yields more frequent product introductions and the potential for more work. In addition, some shops, as well as tool makers and mold makers, have been able to take advantage of the credit themselves. Some may be unaware of this.

The Black Line Group, a tax credit advisement firm (and member of the PMA and the NTMA), cites a few examples of activities that can qualify as R&D. These include addressing challenges involved with milling unusually shaped parts, testing different cutting techniques, experimenting with simulation software, resolving difficulties associated with complex new materials and finding the right balance between the desired completion time for a process versus the durability of tooling or fixtures.

President Obama has said that the R&D tax credit returns $2 to the economy for every dollar spent. While a permanent tax credit won’t singlehandedly pull us out of our current economic ebb, it will damp oscillating R&D efforts while providing a firm foundation for businesses to innovate and expand. Let’s hope the president does what he can to influence Congress to make the tax credit permanent. In the mean time, call on your House representatives and senators to support this initiative.

Now is the time to drive innovation, not stifle it.

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