The R&D Tax Credit Becomes Permanent!

While this time of year traditionally indicates an abundance of turkey, pumpkin-infused desserts, and for many, the odd glass of champagne,  it also signifies another yearly occurrence – the tax extender season. Indeed, December marks the annual ritual when Congress begins to craft a bill to extend tax breaks that expire each year. However, this year, the US congress has provided the ultimate holiday tax gift.

To elaborate, on the 18th of December 2015 House passed The Protecting Americans from Tax Hikes Act of 2015 (PATH), which made a number of federal tax breaks permanent. The Act, which was approved by a 318-109 vote, made the R&D Tax Credit permanent for the first time in history.

capitol-720677_960_720Certainly, there has been no deficiency of groups supporting the permanency of the credit over the ages. Since its creation in the 1980’s, the R&D tax credit has developed into one of the most broadly used tools for motivating innovation in the United States. However it has not once become permanent law, but instead, has been renewed and extended 16 times. The PATH act, apart from making the R&D tax credit permanent, makes variations to the credit to aid more small and medium sized companies use it.

Without a doubt, a permanent R&D tax credit would provide a reliable funding source, which as a result, could encourage investment in basic research and innovation. Likewise, previous research has shown that a permanent R&D Tax credit would result in higher wages for workers and gains in productivity. The National Association of Manufactures (NAM) released a report earlier this year that analyses the economic impact of the R&D tax credit. The report analyses scholarly writings to determine that making the credit permanent could add almost 1 percentage point (about 0.9) to GDP growth on an annual basis.

After all, if there is one policy that has allowed for the expedition of innovation in the United States, then that would be the R&D tax credit. In relation to this, Dorothy Coleman, NAM Vice President of Tax and Domestic Economic, described that the that the R&D tax credit is “key to helping manufacturers innovate, compete in a global marketplace and contribute to U.S. economic growth and job creation.”

Overall, Texas Tax Credit favourably greets the legislation to extend the critical tax incentive which is imperative to our clients. To discuss the R&D tax credit further, please contact Texas Tax Credit.