US Companies Must Wait Longer For R And D Tax Credit

by Mike Godfrey, Tax-News.com, Washington

27 July 2006

Senate Republicans have abandoned their efforts to attach a number of tax cut measures, including new estate tax provisions and the lapsed Research and Development Tax Credit, to a pensions bill currently proceeding through Congress.

Senate Majority Leader Bill Frist (R - Tenn) announced on Tuesday that he will drop the estate tax provision from the bill following objections from some Republicans, including Olympia Snowe (R - Me) who is one of the conferees attempting to reconcile House and Senate versions of the bill passed by both chambers last year.

Some members of the Senate GOP had voiced concerns that the inclusion of the controversial estate tax measures could scupper the entire pensions bill, as lawmakers attempt to wrap up the legislation before Congress leaves for a five-week summer recess on Friday.

Hopes that about two dozen other tax breaks, left out of a tax cut bill earlier in the year and including the key R&D tax credit, could be passed as part of the pensions legislation have also been dashed. This is likely to be a major disappointment to the many companies which have lobbied Congress hard to renew the R&D tax credit.

The R&D Credit Coalition, a Washington-based trade group with more than 500 members, estimates the credit is equal to a federal subsidy of 6 cents for every dollar a company spends on research in the US, and the credit is said to be worth about $5 billion annually to about 16,000 firms.

It is thought that the R&D tax credit and the other tax provisions, including the state and local tax deduction, could be included in a separate estate tax bill, to be considered after the summer recess.

The pensions bill itself also contains about $70 billion in tax saving measures including increased contribution limits to 401(k) pension plans and special tax-free accounts encouraging Americans to save for medical and child care expenses.

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