High-tech tax credits are no bailout

Lapsed R&D credits have cost the U.S. $13 billion and 100,000 jobs. Are today's pols too squeamish to reinstate them?

Timing is everything -- in sports, budget requests, and yes, politics, too. So it is with our collective high-tech fingers crossed that we watch as House Bill H.R. 6049 "Renewable Energy and Job Creation" [PDF] and a Senate amendment -- both of which propose tax credits for R&D in the so-called "innovation" industries -- make their way through Congress.

At issue is whether the hue and cry over recent bailouts -- not to mention the auto industry's request for $85 billion to remain competitive in the small-car, high-mileage race -- makes this the worst kind of timing for a tax credit request. Pundits tell me otherwise, but I fear that the current climate will kill the Congressional will to approve a measure that someone might misinterpret as a handout to the high-tech industry.

At present, all seems well on these proposals. But our current crop of pols are certainly squeemish right now, and should anyone suggest that the R&D tax credit whiffs of a bailout, oh boy, watch them back away from what otherwise should be a no-brainer approval.

The tax credit started back in the 1980s and has been renewed annually until it was left to lapse last December, thanks to squabbling between the Democrats and the Republicans. Now it is up again for approval after almost a year's absence, and people such as Betsy Mullins, vice president for government and political affairs at TechNet, a lobbying group whose members include 150 CEOs in the relevant industries, are saying the absence has cost the country billions of dollars in lost revenue and an untold number of jobs.

The tax credit allows industries to write off the cost of wages for workers in R&D. In high tech, about 90 percent of that credit goes for wages, while similar industries average about 70 percent, says Mullins.

Without the tax credit, multinationals will take their R&D dollars and spend it in other countries that offer incentives like Ireland, India, Canada, and Australia. Obviously, there is also the trickle-down effect that comes from research. Research has as its goal the development of products, and products have to be manufactured, marketed, and sold.

Mullins tells me that last week 3,400 R&D workers sent a letter to Congress making the case that their jobs depend on the credit.

The Information Technology Association of America (ITAA) estimates that for every day the credit is lapsed we lose $51 million in potential business. Because it was not renewed last year, the ITAA says about 100,000 jobs were not created here, and it cost the economy $13 billion. The ITTA site actually has a running clock that shows job cost and dollar cost along with numbers of days the credit has lapsed.

There are two versions making the rounds on the Hill. A Senate amendment to the energy bill that would reinstate the tax credit retroactive to last year and through December 2009. The House created a separate bill rather than using the amendment format. Now the race is on. Congress, at least before the current debacle on Wall Street, intended to adjourn for the year next week. The bill is to be taken up again today. Somehow the Senate and House will have to reconcile the tax-credit proposals into a single bill or a single amendment. In either case, there isn't much time.

Let's hope our politicians know more than how to close the barn door after the horse is out and that they also know how to be forward-looking enough to call the cows home.

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