R&E Tax Credit

Yesterday’s speech by President Obama on clean energy also touched on general issues of technology policy. One of which was that the proposed budget makes the R&D tax credit (more correctly called the Research and Experimentation Tax Credit) permanent. As the White House press release points out, “The credit has been extended 13 times with some extensions lasting just 6 months, and has also been allowed to lapse for almost a year – undermining its effectiveness because companies can’t count on it.”
This is not the first time budgets have been proposed that makes the R&D tax credit permanent. Every time, Congress has decided that it can save a little money in the budget process by passing a limited extension. With a price tag for the R&D tax credit of $75 billion and a lot of political backlash against the President’s multi-trillion dollar budget, I’m sure Congress will be tempted to take the short-term extension route once again.
Funny thing, however, is that the short-term extension route doesn’t really save any money overall. It simply is a budget policy game. The tax credit is still available each year and the money paid out (or technically, the taxes not collected). What it does do is undermine the effectiveness of the programs. With all the uncertainty, the incentives that the tax credits are supposed to provide look to companies to be shaky — thereby rendering them less of an incentive.
In a perverse way, such budgetary games may save the taxpayer money. By reducing the certainty and therefore the power of the incentive, fewer companies undertake activities that qualify for the tax credit. Thus, its expenditures are lower that what it might be. On the other hand, the multiple extensions waste more tax payer money by making the program less effective.
It is like our no-cost approach we are trying to take toward zombie banks (as I mentioned yesterday). “Let’s try to do is as cheaply and as risk-free to the taxpayer’s as possible — thereby guaranteeing that it really won’t work and therefore actually increasing the cost to the taxpayers.” It is like the standard excuse for failure — “well, I’ll try.”
As Yoda once said: “do or do not, there is no ‘try’.” Or ask Nike has told us for years, “Just do it.”
That is my advice to Congress on the R&D tax credit. Just do it!

One thought on “R&E Tax Credit”

  1. R&D tax credit

    On Monday a bipartisan group of Senators, led by Finance Committee Chairman Max Baucus, introduced a bill to make the R&D tax credit permanent — technically the Research and Experimentation (R&E) tax credit. The bill – S. 1203 the Grow…

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