| 3.23.22

Solidifying a Tax Credit for American Research & Development (H.R. 4438)

Do you support or oppose this bill?

What is H.R. 4438?

(Updated September 13, 2016)

H.R. 4438 would change the way that tax credit rates are calculated for research and development (R&D) expenses by establishing a permanent formula.

Business tax credits would be extend to 20 percent tax credit (from the current 14 percent tax) for research and development expenses — equaling to the sum of:

20 percent of qualified research expenses for the taxable year that exceeds 50 percent of the average qualified research expenses for the three preceding tax years;
20 percent of basic research payments for the taxable year that exceed 50 percent of average research payments for the three preceding tax years;
20 percent of all expenses (without regard to a base amount) paid to an energy-research consortium for research conducted for the taxpayer.

Currently this tax credit has to be renewed by Congress — and has been 15 times since its inception in 1981. Senate has already passed a 2-year extension on this same tax credit, good through 2015. The bill backdates such a change to the three preceding taxable years.

Argument in favor

A good incentive for spurring private-sector investment in R&D and creating domestic, high-wage jobs in the United States.

Argument opposed

Provides no direct savings to taxpayers and their families. Kicks the can down the road, in regard to the national debt.

Impact

The potential expiration of the tax has been viewed as a factor for limited 1st-quarter growth; a permanent tax credit could alleviate fears and prod investment through producing clearer corporate balance sheets. The national debt would increase.

Cost of H.R. 4438

The staff of the Joint Committee on Taxation (JCT) estimates that enacting H.R. 4438 would reduce revenues, thus increasing federal deficits, by about $156 billion over the 2014-2024 period.

Additional Info

Of Note:

Bill supporters hope that this legislation will help foster innovation and technological breakthroughs in U.S. companies, while reducing the administrative burdens on taxpayers. As one Forbes columnist wrote in favor of the legislation:

"The real cost of the R&D tax expiration is that it introduces more uncertainty and variability into an already complex process that is supposed to foster stability. By allowing this kind of uncertainty to exist in our economy, Congress has unwittingly put the burden on tax professionals to justify positions on which they have no solid information. It’s asking corporations with revenues greater than the GDP of some small countries to effectively manage their budgets based on a best guess."

Others worry that the bill lacks a corresponding plan for where the money to pay for these tax credits will come, and in turn increasing the federal deficit.