The Senate Finance Committee today gave strong bipartisan support to legislation that would strengthen the U.S. economy and help American businesses to create jobs at a time when we really need it. The so-called “tax extenders package” would renew important provisions that support U.S. job creation – provisions that Congress allowed to lapse last December.
Led by Chairman Baucus and Ranking Member Hatch, the Finance Committee is showing true bipartisan leadership at a moment when sharp division often dominates what happens in Washington.
Many of the provisions in the Senate legislation are integral to America’s global economic leadership and businesses’ ability to innovate and create new, good-paying, long-lasting jobs.
The technology sector is focused on three specific extender provisions. The first is the Research and Development (R&D) tax credit. This is clearly a pro-jobs tax credit, with approximately 70 percent of the benefits of the credit attributable to salaries of workers performing U.S.-based research. This credit leads to more tax revenue, patents, and jobs. Here at home and around the world, R&D tax incentives have proved to effectively increase private-sector innovation and boost economic growth.
The United States was among the first nations to realize the importance of spurring R&D through the tax code, putting in place the R&D credit in 1981. Throughout that decade, the U.S. enjoyed a relatively generous R&D tax incentive. However, as the Information Technology and Innovation Foundation has noted, other nations learned from our success and have not just copied us, but left us in their wake. By 1996, the United States had fallen to seventh in R&D tax generosity among the 30 OECD nations; by 2004, the U.S. had fallen to 17th. Other non-OECD nations – including our top global competitors – have overtaken the U.S. in supporting R&D. And all of that was before the U.S. R&D tax credit was allowed to expire last December. Our global competitors would welcome continued congressional inaction on the R&D credit; our economy simply cannot afford it. The Finance Committee’s action is certainly welcome.
Like the R&D credit, the technology sector also strongly supports an extension of expired tax provisions that companies depend on to compete abroad – the exception under Subpart F for the look-through treatment of payments between related controlled foreign corporations (CFCs) and the corollary exception for active financing income. Top American economists have studied the domestic effect of U.S. firms’ foreign investment and found that such investment is associated with increased U.S. investment, wages, employment, R&D spending, and exports. The high-tech industry depends on serving markets around the world, and these provisions are crucial to our ability to compete abroad so that we can remain strong and create jobs here at home.
Those who have recently criticized these tax extenders with facetious claims are ignoring one fundamental fact: American businesses compete in a global economy. For the U.S. high-tech sector generally, most of the goods and services they produce are sold outside the U.S. Our national economy depends on the success of our exports and the ability of U.S. businesses to innovate and invest. The tax extenders legislation approved by the Senate Finance Committee enables U.S. businesses to compete on a level playing field in foreign markets against foreign competition, while driving competitiveness, innovation, and job growth.
The importance of America’s global companies cannot be understated. American companies that operate globally directly sustain more than 22 million U.S. jobs directly, and a further 41 million indirectly. The average U.S. company operating globally buys $3 billion in goods and services from small businesses here at home, with a cumulative impact of more than $1.52 trillion. If Congress were to follow the advice of misinformed critics, those jobs and those investments could be put in jeopardy.
The tax extenders legislation clearly will help American businesses to compete to win in this global economy.
We hope that the bipartisan vote in the Senate Finance Committee sets the stage for quick action by the full Senate. The American economy needs a jumpstart, and these job-creating tax credits could be an important catalyst for much-needed economic growth.