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Contractors Urge Congress To Extend R & D Tax Credit

By | July 31, 2006

      A lobbying group including major defense contractors is urging Congress to extend the research and development tax credit, saying the now-expired tax break could help to contain costs of R & D performed in the United States.

      The R&D Credit Coalition is an organization representing thousands of businesses engaged in U.S.-based research and development activities, including The Boeing Co. [BA], Lockheed Martin Corp. [LMT], Northrop Grumman Corp. [NOC], and Raytheon Co. [RTN].

      Coalition leaders issued a statement viewing with concern the possibility that Congress won’t extend the R & D tax break.

      “Reports that House and Senate pension conferees are considering eliminating an extension of the R&D tax credit and other expired tax provisions from [pending legislation now in a House-Senate conference agreement] are extremely troubling,” the coalition statement asserted.

      It is difficult for businesses to plan research projects when their net cost is unknown because of tax uncertainties, the coalition argued.

      “This important tax incentive expired seven months ago,” the coalition noted, and this is harming companies financially.

      “As it languishes American companies endure a tax increase as their costs of doing critical research and development in the United States rise,” the coalition statement continued.

      The group leaders wonder why the tax break extension hasn’t become law, considering the number of elected leaders professing to favor it.

      “President Bush stressed the importance of the R&D credit in his State of the Union Address and members of both the House and Senate repeatedly have endorsed the credit as a valuable tool in fostering U.S.-based technology and innovation,” the coalition noted.

      The coalition urged Congress to pass the tax credit extension before the lawmakers take their month-long summer break. Otherwise, action would be delayed until after Labor Day.

      This problem is common because of the way many tax provisions are written. For example, some tax cuts are structured so they automatically dissolve after a certain period, perhaps a few years, so the price tag of lost revenues from the cuts doesn’t appear so large.

      But this ensures that periodically, there will be a frenzied movement to extend each tax cut further.

      While tax cuts are popular and lawmakers enjoy voting for them, the problem is that budget rules may require that a tax cut must be paid for, such as with spending cuts or increases in other taxes.

      That’s why, even with popular tax breaks, extending them may take some time. Usually, however, the tax provisions are extended, even if they aren’t made permanent.

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