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Ramstad and Zerbe: ‘Big 5’ Improvements To R&D Tax Credit

3. Increase the R&D tax credit. The current credit is 20 percent. Several Members, including Reps. Donna Edwards (D-Md.) and Roscoe Bartlett (R-Md.), have proposed increasing it to 25 percent or higher. An increase to 30 percent would be of significant help to business, and consideration should be given for a higher rate: 40 percent for small businesses with less than $50 million in gross revenues. 

4. Increase the alternative simplified credit. Because the tax code can never be easy, there are actually two different ways for companies to compute the credit. The ASC has been of much benefit to many companies — especially small and medium businesses — that may otherwise have difficulty qualifying for the R&D tax credit. The longtime champions of the R&D credit, Baucus and Sen. Orrin Hatch (R-Utah), have called for an increase of the ASC from 14 percent to 20 percent. Other lawmakers have similarly proposed an increase to 20 percent, including Sen. Susan Collins (R-Maine) and Rep. Kevin Brady (R-Texas). President Barack Obama in his budget asked for an increase of the ASC to 17 percent. With everyone in agreement that we need to go beyond 14 percent, hopefully this much-needed increase can get done.

5. Expand the R&D credit when manufacturing is done in the U.S. While it is vital that the U.S. maintain its lead internationally in R&D, policymakers should consider proposals that will also encourage U.S. manufacturing. Sen. Herb Kohl (D-Wis.) has proposed legislation that would increase the R&D credit from 20 percent to 30 percent for those companies that produce goods domestically. Providing an expanded R&D credit to a company with a significant percentage of domestic manufacturing will help keep manufacturing jobs in this country and foster greater R&D. In addition, such a proposal will particularly benefit small and medium-sized businesses that traditionally seek to maintain domestic manufacturing. 

These are the “big five” changes that will make a real difference in encouraging research and development in this country, providing for good jobs today and a better tomorrow.

Former Rep. Jim Ramstad (R-Minn.) is senior adviser for alliantgroup. Dean Zerbe served as senior counsel and tax counsel to the Senate Finance Committee and is managing director of alliantgroup.

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