Corporate tax policy has become a lightning rod of American politics. Increasingly, some populist Democrats see it as an issue by which to bash “Benedict Arnold” corporations who move jobs and profits offshore. Meanwhile, libertarian Republicans view tax policy as a way to get government out of the business of “picking winners” through targeted tax incentives, instead preferring a corporate tax code with one low rate for all firms and activities.
It is this context that makes the House’s recent passage of the American Research and Competitiveness Act of 2014 (H.R. 4438) so important. Despite criticism from the left and the right, the bill passed on a vote of 274-131, with about a third of Democrats voting with Republicans to approve the measure.
The bill would simplify the existing credit and increase the amount of the tax credit that companies can claim for “qualified” research expenses from 14 to 20 percent (which would move us to 15th globally in R&D incentives). It would also make the credit permanent, eliminating the need to extend the program each year. These are both ideas that ITIF has long championed.
However, despite the rare show of bipartisanship and the strong evidence in support of the credit’s benefits, the bill’s fate is far from certain. The Senate still has to take it up, and it is inclined to extend the credit, not make it permanent. But the strongest opposition to the bill comes from the Obama administration itself. The White House was quick to issue a Statement of Administration Policy saying that the President’s top advisors would urge him to veto the bill. This is despite the fact that the President has consistently trumpeted the need to expand and make permanent the credit.
The reason for the opposition is that the House bill fails to find the requisite budget offsets. But the insistence on a budget offset is, in this case, misguided. The cost of the R&D tax credit should be considered an investment, not spending. By spurring more R&D, HR 4438 would boost economic growth to the tune of $66 billion more a year and help create 162,000 jobs. Moreover, it’s worth noting that the Administration’s insistence on a budget offset in this instance is inconsistent with some of its prior policy—the last budget submitted by the President to Congress would have increased the deficit by $2.4 trillion over the next 10 years.
Rather than simply saying no, the White House should take the following steps. First, it should call on the Treasury Department to issue an estimate of what it believes the bill would cost on a longer-term, dynamic basis, and second, it should propose the specific offsets it would like to see. This at least would move the debate forward constructively. The United States can no longer afford to stand by while other nations seek to win in the race for global innovation advantage.
Robert D. Atkinson is President of the Information Technology & Innovation Foundation (ITIF), a think tank based in Washington, D.C. Follow: @robatkinsonitif