Obama to Seek 100 Percent Expensing, Permanent R&D Credit
By Brett Ferguson, Heather M. Rothman, and Jonathan Nicholson
Publication Date: 09/08/2010
President Obama is preparing a pre-election push to make the research and development tax credit permanent and create a massive, temporary tax incentive to encourage businesses to invest in new equipment, the White House confirmed Sept. 7.
White House Press Secretary Robert Gibbs said the president will announce a plan to offer businesses the chance to deduct 100 percent of the cost of qualifying capital equipment purchases made in 2011, double the amount allowed in the Emergency Economic Stabilization Act of 2008 (Pub. L. No. 110-343) and proposed for the small business bill (H.R. 5297) that is currently stalled in the Senate.
“We're saying that for 2011, we believe that 50 [percent] should go to 100 [percent]. It builds off of an effort to get capital off the sidelines and into the economy,” Gibbs told reporters.
Allowing businesses to expense the full cost of capital purchases would cost about $30 billion, he said, but some of that could be offset by closing “corporate loopholes” such as the tax code Section 199 manufacturing deduction for the five major integrated oil and gas companies. When Congress last seriously considered a repeal of the Section 199 deduction for the major oil and gas companies in 2008, the Joint Committee on Taxation estimated that the provision would raise about $9 billion in additional revenues.
Senate Finance Committee Chairman Max Baucus (D-Mont.) and Sen. Bill Nelson (D-Fla.) have also proposed an amendment (S. Amdt. 4595) to the small business bill that would repeal the Section 199 tax benefit for the major oil companies, but their amendment would use the money to pay for a proposal to soften new Form 1099 reporting requirements that were signed into law to help pay for the health care reform bill.
Regardless of how the money is used, Gibbs acknowledged that the president's plan does not call for all of the $130 billion in proposed tax cuts and an additional $50 billion in infrastructure spending proposed by the Obama administration to be offset.
The president also is pushing to make the research and development tax credit a permanent feature of the tax code, rather than continue to ask Congress to pass it as a temporary extension every year.
Making the R&D credit permanent and expanding it would cost about $100 billion over 10 years—a key reason Congress has not already done so—but Obama has argued that the change will benefit the economy by reducing business uncertainty about the credit's future.
U.S. Lags in R&D Investment
Making the research and development tax credit permanent has long been a popular idea among lawmakers of both parties and interest groups who believe it could help grow the domestic economy.
In a paper released Sept. 7, the National Center for Policy Analysis noted that in 1981 the United States had “the most generous R&D credit of any nation, but today, 16 other nations have a more generous tax break for R&D,” which means many firms are sending their R&D overseas.
“Higher R&D investment yields greater productivity and higher tax revenues,” said Pamela Villarreal, NCPA senior policy analyst and coauthor of the report. “Making the credits permanent would provide incentives to conduct research and manufacturing in the U.S. rather than splitting the effort among nations.”
Gibbs said the White House has not taken a position on whether the proposals should be advanced together or separately, or whether they should be included in the small business bill or possibly a broader bill that would extend the middle-class tax cuts from 2001 and 2003.
“We certainly hope that there are measures, including some of the ones that the president will outline, that Congress will consider,” Gibbs said. He added that, even if there is not enough time to handle the proposals ahead of the midterm elections in November, “the president and the economic team still believe that these represent some very important ideas in continuing along our path toward economic recovery.”
Rough Road Ahead
The president's proposals, while aimed at attracting the support of Republican and Democratic moderates in both houses, still face a sizable challenge, lawmakers and aides said.
Sen. Charles Grassley (R-Iowa), ranking member of the Finance Committee, said the proposals sound fine, but it seems like they will be paid for in a way that ultimately hurts job creation.
House Democratic leaders are expected to discuss them more when they arrive back in Washington from the summer recess, but the proposals could be “difficult to pass,” a leadership aide said by e-mail. “We'll see if they can get the votes in the Senate.”
The complete text of this article can be found in the BNA Daily Tax Report, September 8, 2010. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
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