R&D Tax Credits

The Research and Development (R&D) tax credit was originally enacted in 1981. The R&D tax credit has a proven track record of stimulating U.S. investments, wage growth, consumption, and exports, all of which contribute to a strengthened U.S. economy and a higher standard of living for all Americans. However, on December 31, 2005, the credit expired for the twelfth time in its history.

In the past, there have been efforts to make the R&D tax credit permanent because most business R&D initiatives span five to ten years. Enactment of a permanent R&D tax credit would enable companies to have certainty in their budget and tax planning. Support for the R&D tax credit in Congress has always been strong and bipartisan. The main hindrance to its permanent extension has always been its cost.

During deliberations on the 2004 international tax bill (H.R.4520, The American Jobs Creation Act); the Senate approved an extension and an enhancement of the R&D credit in its version of this legislation. Unfortunately, because the enhancement was not included in the House-passed version of the tax bill, the enhancement did not make it into the final bill sent to the President for enactment. During consideration of the tax reconciliation bill in late 2005, both the House and Senate did include the enhancement. Although Congress did not finish work on the bill before adjourning for the year, both chambers' inclusion of the modified language is an important step in the right direction.

The Information Technology Industry Council (ITI) urges Congress to support investment in U.S. technology and innovation by passing legislation that extends and strengthens the R&D tax credit. Doing so would be a crucial step toward improving the competitiveness of the U.S. high-tech sector, as well U.S. businesses generally.