Lincoln Helps Push Improvements to Research and Development Tax Credit

Lincoln Helps Push Improvements to Research and Development Tax Credit

Revised legislation fosters innovation, job growth, and American competitiveness

Washington – U.S. Senator Blanche Lincoln (D-AR) this week helped introduce legislation to improve and simplify the research and development (R&D) tax credit, which has been an essential tool for spurring economic growth at home and American competitiveness abroad.  The revised incentive will encourage greater innovation of new technologies and services.

“American businesses are innovators and our country has benefitted greatly from the research they have undertaken and the investments they have made,” said Lincoln, a member of the Senate Finance Committee with jurisdiction over tax policy. “I’m proud to join in introducing this important piece of legislation and voice my strong commitment to this incentive, which supports American ingenuity at its best.  To sustain our role as a leader in the global marketplace, it’s important that we provide certainty and stability in the tax incentives our American businesses rely upon.”

Under current law, the R&D provision is composed of two credits—a traditional credit and the alternative simplified credit—which provide U.S. firms a tax credit for incremental qualifying research expenses, such as labor and equipment costs.  A new proposal would allow the traditional credit to expire in 2010 and increase the alternative simplified credit, which is currently set at 14 percent of qualifying expenses, to 20 percent of qualifying expenses.  Companies would be given the option to claim the credit under current law in 2009 and 2010 in order to have time to adjust their accounting and effectively shift to the new, improved simplified credit.

Since its enactment in 1981, the R&D tax credit has become a powerful and effective incentive for firms to increase research spending.  If enacted, the bill introduced this week would extend the credit and provide a stronger alternative simplified credit that addresses changes in business models and economic circumstances that currently prevent some businesses from getting full benefit of the credit.  The alternative simplified credit was added in 2006 for tax years beginning after December 31, 2006.

Senate Finance Committee Chairman Max Baucus (D-Mont.) is the chief sponsor of the legislation. Committee members Orrin Hatch (R-UT), John Kerry (D-MA), Ron Wyden (D-OR), Chuck Schumer (D-NY), Maria Cantwell (D-WA), John Ensign (R-NV), Robert Menendez (D-NJ), and John Cornyn (R-TX) are cosponsors.