"Riley Factor"

This article was featured in the March 2008 issue of Business Matters, our monthly print newsletter.

13 Is a Real Unlucky Number for Many Businesses

The federal research and development (R&D) tax credit expired December 31, 2007, resulting in a $9 billion tax for the nearly 11,000 companies of all sizes that use the credit.

In 2007, the United States ranked 15 among 20 Organization for Economic Cooperation and Development (OECD) countries offering R&D tax incentives. Now since the tax credit has been allowed to expire--the 13th time it has been allowed to expire since its inception in 1981--the United States ranks dead last.

Business groups, including our Chamber, will be doing a full court press in 2008 to get a multiyear extension of a strengthened R&D tax credit.

R&D Tax Credit Facts

• For more than 25 years, the R&D credit has been a proven incentive to spur incremental R&D in the United States.

• R&D fuels innovation that translates into new products and increased productivity. In the past decade (1994-2004), manufacturing productivity increased by 60 percent, primarily due to innovation and technological advances.

• The credit creates jobs. Only R&D performed in the United States qualifies for the credit, and more than 75 percent of credit dollars are used for salaries of employees engaged in R&D.

• Technological innovations, which are a major factor in spurring economic growth, result in spillover benefits to American workers in terms of higher wages and a higher standard of living.

• The credit helps keep us competitive. Many of our economic competitors provide companies with a variety of generous and permanent R&D incentives. In 2003, foreign-based R&D spending by U.S. parent companies grew faster than domestic R&D spending.

• R&D activities by manufacturers typically span five to 10 years. A strengthened and permanent R&D credit is necessary to guarantee that the credit will be available during the life of the R&D project.

Chamber Action:

The Chamber will be contacting our elected officials to urge them to co-sponsor a bipartisan bill, H.R. 2138, the Investment in America Act of 2007.  In addition, the Chamber will be contacting our Senators and urging them to co-sponsor S. 2209, the Research Credit Improvement Act.  As the bills begin to move, the Chamber will be turning to the membership to help us get the message to our federal elected officials this legislation must be passed.