Rebuilding America: Proposals emerge to fix 'dysfunctional' R&D tax credit

1/27/2012 12:50 PM EST

Sarbanes and Oxley pushes little businesses into the ground. Hatch supported this legislation- and people think he's business friendly

1/27/2012 5:57 PM EST

eric988, you are referring to Sarbanes-Oxley reporting and accounting requirements?

1/28/2012 5:17 PM EST

I am really intrigued by Rashkin's comment. You write: Rashkin told Congress that the current structure encourages U.S. companies to “park the resulting intellectual property in tax havens.”

What does that mean?

1/28/2012 10:39 PM EST

It means that IP that was developed in the US becomes owned in a tax haven so that the profits from such IP are not taxed in the US. This is why companies find it profitable to put jobs overseas even if there is no business reason to do so.

1/29/2012 8:35 AM EST

Thanks for responding! So, if we are to advance that theory, a company might as well forget about doing R&D in the United States...is that it?

1/30/2012 10:56 AM EST

The last two paragraphs of this article were unbecoming of an otherwise interesting point, and unnecessary.

1/30/2012 2:08 PM EST

Bringing manufacturing back to the USA requires leveling the playing field. An easy way to do this is to eliminate taxes for companies manufacturing in the USA with US citizen labor. Let companies keep the profits within the company. They could use their profits to purchase equipment, fund, R & D, finance expansions, or just keep a nest egg to cover a unexpected bad year. Only tax the money that is removed from the company (compensation, dividends, bonuses, etc.)

1/30/2012 2:57 PM EST

Fair enough. But please understand that throwing a gratuitous jab at congressional Republicans (while conveniently leaving out the Democrat controlled Senate - Harry Reid et al), and then giving a kiss on the cheek to the Obama administration - where both sources sighted were unidentified and obviously biased - does more to identify your particular political bent than it does to fairly assess the ideas chances. Which, btw, is a subject deserving of its own detailed treatment. That given the complexities of our system, and the long history of parties doing battle over tax laws.

Without those last two paragraphs I was able to get a feel for the idea's merits and, as a conscientious voter, would further research the idea and decide to act, or not, by calling my local representative in support of, or against, the idea.
With them I am forced to doubt the source and take chances on my employment by writing long responses to the writer. This does neither of us any good.

1/30/2012 3:19 PM EST

Eliminate R&D tax credits for any R&D done off-shore. If a company does R&D in India or China, then they should seek R&D tax credits from India or China, not from the U.S.

1/30/2012 3:46 PM EST

Changing the R&D tax codes won't add manufacturing jobs to the US or Canada. At best all it will do is keep the R&D jobs here. The problem of manufacturing jobs stems from the major world investors. Investors only want to see one thing, profit and not just profit but the maximum profit that can be had. Thus it forces the large corporations to do business in such a way as to maximize profit which currently is by getting all of the work done in other countries. I just read an article about Apple and how all of its products are made in countries other than the US. The issue was not that Apple wouldn't make profit (a good one at that) but that they could make even more profit by using foreign companies to build the products in those countries. So long as companies are forced to operate such that they must make maximum profits it will be a long time before manufacturing jobs move back to the US or Canada. Adding to the problem is that Americans and Canadians want to buy their items for lowest price possible which then forces companies to look to where they can get the product we buy at the lowest cost. And don't worry countries like China, India, Brazil and such will be facing the same situation in the future. I believe the next location to be exploited with be Africa as it will have the lowest wages and least amount of environmental laws. I have run the numbers on several products I have design in the past and realized that they could be made just as cost effectively here in North America (US or Canada) but it would take a different way of manufacturing and would require some investment cost. It would also mean that instead of making huge profits this would generate decent profits that would allow the company to invest in developing new products. In the end I don't think revamping R&D tax breaks will solve the manufacturing job crisis I believe it will take a paradigm shift on how much profit is considered acceptable profits.

1/30/2012 4:09 PM EST

Focussing on R&D in the US is just so much " rearranging the deck chairs on the Titanic " !!

The problem is not in the quality or quantity of R&D in the US but what follows ( or does not ).

When it comes to technology the US has been leaking like a sieve and China has been getting a free ride, thanks to the investor community in the US and their propagandists.

Too often R&D in the US does not translate into manufacturing in the US as it is shifted overseas, thus restricting the benefit of the R&D ( often carried out with public funds ) to only a few handful like the VCs.

This process of de-industrialization ( enforced by the investor community ) has caused a gradual bleeding of R&D capacity in the US and it is finally affecting even the high-end like semiconductors and bio-tech as well.

The US has population 5x of Germany so unlike Germany cannot just focus on the high end ( BMWs and plant machineries ). The US needs to build its own consumer products once again, starting with major appliances and consumer electronics. Otherwise the trillions lost to China by outsourcing will keep coming back as higher cost of oil, defense and finally a loss of sovereignty ( Wall St. and GE already dance to China's tune ).

Ricardo's Law of comparative advantage does not apply to a Nuclear armed China that is hung up on restoring the glory of the Mddle Kingdom and con the West into doing it for them.

A new Tax policy to revive the US economy must have both carrots ( to keep manufcaturing within the US ) and sticks ( to discourage outsourcing, technology siphoning and Baine Capital style vulture capitalism ).

The additional cost for supporting advanced manufacturing will be esaily paid back by higher employment, generation of new technologies, export and tax revenue.

But the investors who have driven the US to the brink must first be restrained.

1/30/2012 8:25 PM EST

For those interested in delving deeper into this topic, the Center For American Progress recently released a detailed report about the R&D Tax Credit that I co-wrote with Laura Tyson: http://www.americanprogress.org/issues/2012/01/corporate_r_and_d.html

Tax havens and offshore manufacturing are related, but equally complex, topics, and we did not address them in the report.

The main points I'd like to bring out here:

- The complexity of the credit has greatly reduced its usefulness because the IRS takes back a lot of what companies claim. We proposed eliminating both the incremental nature of the credit and its restriction to a set of "qualified research expenditures". Companies already treat the credit as a lump sum, and these changes would eliminate much of the administrative cost for companies as well as the IRS.

- It would be a mistake to change the credit and make it permanent at the same time. A revised credit should get a 5-year extension to give it time to be evaluated.

- The relationship between R&D and manufacturing is more complex than might first appear. R&D is attracted more by the growth of offshore markets and the availability of engineering talent than by the presence of other value chain activities. The R&D credit is one piece of the puzzle of keeping the US R&D environment attractive.

- The R&D Tax Credit is not the answer to all the nation's problems, but study after study has shown that it induces at least as much R&D as it costs the taxpayer. Studies also show that R&D brings benefits to the economy that far outweigh the cost of the R&D. The R&D credit is worth preserving even if Congress gets down to meaningful corporate tax reform.

1/31/2012 12:18 PM EST

Thanks for posting the report link, Greg. You favor a 5-year extension. There is an argument that such incremental extensions have only served to generate campaign contributions for members of the congressional finance committees:

http://www.forbes.com/2004/04/28/cz_jn_0428beltway.html

Why not make it permanent in exchange for strict requirements for reinvesting revenues in R&D, design and manufacturing here in the U.S.?

2/1/2012 8:58 PM EST

I commend the following, just posted to the EE Times opinion section, by tax expert and electronics industry veteran Michael Rashkin:

http://www.eetimes.com/electronics-news/4235663/The-R-D-credit-doesn-t-work