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The Research Tax Credit, or the Research and Experimentation Tax Credit as it is officially known, was enacted as part of the Economic Recovery Tax Act (ERTA) of 1981. By passing the act, Congress created a temporary 25% tax credit that was designed to increase research spending by businesses. The credit was made available to eligible businesses, with research spending that exceeded a base period amount. Issued as an incremental credit, the research tax credit was designed to encourage more research spending, while attempting to minimize revenue loss to the United States Treasury.
Further Research Tax Credit History
Although designed to be a temporary tax credit, concerns over the ‘competitiveness’ of the U.S based businesses, versus those in other countries, and studies showing that US businesses were spending less and less on research, prompted Congress to continually renew and change the research tax credit. The tax credit was extended in the tax Reform Act of 1986; however, at that time the tax credit was lowered to 20%. Since 1986, the research tax credit has been extended numerous times; at present, the research and experimentation tax credit is still available to US businesses as it has been extended until 2010.
Since the Research Tax Credit was enacted in 1981, Congress has allowed it to lapse and expired at least 13 times; however, Congress has always retroactively renewed the tax credit and extended it. In 1994 President William Jefferson Clinton proposed to make the research credit a permanent tax credit. However, Congress opted to instead simply provide yet another extension of the Research Tax Credit. President George W. Bush also tried, and failed, to have the tax credit made permanent.
Shortcomings of the Research Tax Credit
The research tax credit was intended to provide additional incentives for research spending above and beyond the incentives provided by research deductions. Under the guidelines, research expenditures are viewed as capital spending, because they may provide future benefits and may generate future amortized deductions. However some critics state that research spending that has already been properly addressed since 1954; since that time, businesses have been able to claim all qualified research spending as deduction expenses, thus providing tax benefits.
The Research Tax Credit in its present form has encouraged additional private research investment, since it was enacted in 1981. However, the incentives intended by the research tax credit have been somewhat diminished by the tax credit’s structure; furthermore, many businesses are reluctant to inject additional capital into research when the credit has been allowed to expire so many times, and when there is no way of knowing if the credit will be made available from one year to the next.
The Research Tax Credit has spurred research and development spending by businesses; however, many businesses are reluctant to increase research and development spending, until the tax credit is made permanent. Nevertheless, while the tax credit is available, businesses can significantly offset the cost of research with this tax credit.
Further Research Tax Credit History
Although designed to be a temporary tax credit, concerns over the ‘competitiveness’ of the U.S based businesses, versus those in other countries, and studies showing that US businesses were spending less and less on research, prompted Congress to continually renew and change the research tax credit. The tax credit was extended in the tax Reform Act of 1986; however, at that time the tax credit was lowered to 20%. Since 1986, the research tax credit has been extended numerous times; at present, the research and experimentation tax credit is still available to US businesses as it has been extended until 2010.
Since the Research Tax Credit was enacted in 1981, Congress has allowed it to lapse and expired at least 13 times; however, Congress has always retroactively renewed the tax credit and extended it. In 1994 President William Jefferson Clinton proposed to make the research credit a permanent tax credit. However, Congress opted to instead simply provide yet another extension of the Research Tax Credit. President George W. Bush also tried, and failed, to have the tax credit made permanent.
Shortcomings of the Research Tax Credit
The research tax credit was intended to provide additional incentives for research spending above and beyond the incentives provided by research deductions. Under the guidelines, research expenditures are viewed as capital spending, because they may provide future benefits and may generate future amortized deductions. However some critics state that research spending that has already been properly addressed since 1954; since that time, businesses have been able to claim all qualified research spending as deduction expenses, thus providing tax benefits.
The Research Tax Credit in its present form has encouraged additional private research investment, since it was enacted in 1981. However, the incentives intended by the research tax credit have been somewhat diminished by the tax credit’s structure; furthermore, many businesses are reluctant to inject additional capital into research when the credit has been allowed to expire so many times, and when there is no way of knowing if the credit will be made available from one year to the next.
The Research Tax Credit has spurred research and development spending by businesses; however, many businesses are reluctant to increase research and development spending, until the tax credit is made permanent. Nevertheless, while the tax credit is available, businesses can significantly offset the cost of research with this tax credit.
