R&D Credit Here to Stay?

A proposal to make R&D credit permanent is closer than ever.
John P. Mello Jr.September 1, 1999

Although it’s buried in a controversial tax measure, a proposal to make permanent the tax credit for research-and-development spending is closer than it has ever been to making it into the nation’s statute books.

Since its introduction in 1981, the R&D credit has had to be renewed annually by Congress. With that kind of uncertainty, the credit’s full potential for encouraging innovation has remained unrealized, according to its proponents. “When people are looking at funding projects, they have to consider the fact that the credit may not be there next year,” contends Roberta Katz, CEO and president of the Technology Network, a lobbying group based in Palo Alto, Calif.

A permanent credit will also encourage more- daring innovation, according to Walter Moore, vice president for government affairs for Genentech, Inc., a San Francisco­based biotech firm. “The major effect of making the credit permanent is that the people who have to make the determination as to how to spend resources for research are going to be more prone to take on riskier research projects,” he says.

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Why, after 18 years, has Congress concluded the R&D credit is good? “Technology is behind our improved economy,” observes William J. Sample, senior director of tax for Microsoft Corp. “Congress realizes a permanent credit can help continue our economic growth.”

Capitol Hill observers expect prolonged wrangling over the tax-cut bill, which includes provisions to make the R&D credit permanent. But supporters of the credit predict a permanent extension will be part of the final measure signed into law.