The permanent R&D credit will help promote U.S. innovation, job creation, and economic growth by providing reliable tax relief to U.S. businesses that invest in research.
In Washington, persistence can pay off.
That’s the lesson learned from the decades-long pursuit of a permanent R&D tax credit, an effort that reached a successful conclusion in December. A permanent R&D credit will promote U.S. innovation, job creation, and economic growth by providing much-needed, reliable tax relief to U.S. businesses that invest in research.
Enactment of a permanent R&D credit was particularly gratifying for the semiconductor industry, which had a lead role in securing passage of the original credit in the early 1980s and has been a vigorous advocate for making it permanent ever since.
To understand the impact a permanent R&D credit will have on our industry and the U.S. economy, it helps to understand how the original credit came to be. In the late 1960s, private investments in R&D in the United States began to decline as a share of GDP. Over the next decade, slowing R&D investments began to take a toll on U.S. economic growth and global competitiveness. By the early 1980s, Congress became concerned and sought the input of prominent leaders in business and technology.
In 1981, semiconductor pioneer Robert Noyce of Intel—one of the founding fathers of our industry, of Silicon Valley, and of modern technology—testified before Congress about the need for a credit to incentivize research. Later that year, Congress enacted the original R&D credit, thanks in part to the input of Noyce and other key voices.
Since then, the credit has lapsed and been extended 17 times. Throughout these decades of erratic implementation, the semiconductor industry has been on the front lines of the effort to make the credit permanent. That work paid off on Dec. 18 when Congress at long last made the credit permanent.
Since its inception, the R&D credit has been a key driver of technological discoveries and economic growth. It has been particularly impactful for the U.S. semiconductor industry, which invests one-fifth of revenue in R&D annually—a greater share than any other U.S. industry. These investments have given rise to new discoveries that fuel our industry and the overall economy. Making the R&D credit permanent gives U.S. semiconductor companies certainty and stability, allowing them to plan research investments for years to come.
The R&D credit is also a proven job-creator. The semiconductor industry directly employs nearly 250,000 people in high-skilled, high-wage jobs across America, many of which are in the areas of research and innovation. Since over 70 percent of credit dollars are used to pay the salaries of high-skilled R&D workers in the U.S., the R&D credit helps support research jobs at U.S. semiconductor companies and across our economy.
A great deal of work still needs to be done to make the U.S. tax system competitive with those of other nations. Even with the credit now permanent, the U.S. has among the weakest research incentives of any developed country, and we continue to lose ground to competitors that have significantly increased tax incentives for private-sector research investments. The credit now needs to be modernized by raising the rate of the Alternative Simplified Credit (ASC) from 14 to 20 percent. Furthermore, we need to avoid other tax changes that would increase the cost of research, such as requiring research expenses be amortized over several years, rather than simply deducted in the year incurred.
Beyond a strengthened research credit, our tax system needs restructuring to enable U.S. companies to remain globally competitive. We look forward to working with Congress to enact comprehensive tax reform that will strengthen research incentives, lower the corporate rate, and move toward a territorial international system that encourages American companies to invest overseas income in the U.S.
For 35 years, the semiconductor industry fought with great resolve to enact a permanent R&D credit. With that battle now won, it’s time to take the next step forward by improving the research credit and advancing other tax policies in helpful ways that will boost innovation and competitiveness in the U.S. semiconductor industry, the broader tech sector, and our economy.
—John Neuffer is president and CEO of the Semiconductor Industry Association (SIA), the voice of the U.S. semiconductor industry.