Despite a veto threat from the White House earlier this week, the House of Representatives on Friday morning voted 274 to 131 to permanently extend the popular business research and development (R&D) tax credit, which will add $156 billion to the deficit.
A majority of House Democrats felt that extending the tax break without offsetting the cost was fiscally irresponsible. Republicans countered that the R&D tax credit, which expired at the end of 2013 and has been extended roughly 15 times since it was enacted in 1981, has historically been revived without offsets.
On the House floor yesterday, Ways and Means Committee Chairman Dave Camp (R-MI) stressed the need for concrete solutions that strengthen the economy and help hardworking taxpayers. He noted that according to the nonpartisan Joint Committee on Taxation, up to 10 percent more R&D will occur if the credit is made permanent.
“We certainly need more of that because it’s more jobs, more innovation, and higher wages,” he said. “This is a very competitive world, and most of our constituents understand the kind of competition that we face. We need to make this permanent; we need to do it now.”
Lawmakers on both sides of the aisle, as well as the Obama administration, agree that permanently extending the research credit is a good thing, as they say it will create new jobs and allow businesses to make investments in research and technology initiatives. In fact, 62 House Democrats voted today in favor of extending the research credit.
However, a majority of House Democrats and the White House opposed the Republicans’ approach of adding the $156 billion cost of extending the R&D tax credit to the deficit.
“We’re in favor of the R&D tax credit. We’d like to find a way to permanently extend it. But let’s do it in a fiscally responsible manner,” Representative Chris Van Hollen (D-MD), ranking member of the House Budget Committee, said yesterday. “When you don’t pay for it, when you put it on the credit card, at the end of the day somebody is paying for it.”
The $156 billion R&D credit was one of six tax breaks the Ways and Means Committee voted on April 29 to extend permanently at a total cost of $310 billion. The tax breaks are often called “extenders” because they are revived by Congress every year or two.
On Tuesday, the Obama administration threatened to veto the House measure, dubbed the American Research and Competitiveness Act of 2014 (HR 4438), if the cost of the R&D credit is unpaid for. The White House proposed offsetting the cost of the tax break by “closing tax loopholes.”
“If this same, unprecedented approach of making major traditional tax extenders permanent without offsets were followed for the other traditional tax extenders, it would add $500 billion or more to deficits, wiping out most of the deficit reduction achieved through the American Taxpayer Relief Act of 2013,” the Office of Management and Budget said in a statement.
“The administration wants to work with Congress to make progress on measures that strengthen the economy and help middle-class families, including pro-growth business tax reform,” the statement continued. “However, making traditional tax extenders permanent without offsets represents the wrong approach.”
Ways and Means Republicans said in a statement on Tuesday that tax extenders have historically not been paid for.
“In fact, in both 2006 and 2008, then-Senator Obama voted to extend the R&D tax credit without paying for it. And, in 2010 and 2013 he signed into law unpaid-for extensions of tax extenders,” according to the statement.
The House bill is expected to stall in the Democrat-controlled Senate, tax lobbyists said, according to a recent article by Patrick Temple-West of Reuters.
Early last month, the Senate Finance Committee voted to revive about 50 of the 55 tax breaks that expired at the end of 2013, including the R&D credit, as part of a two-year, $85 million legislative tax extenders package. If approved by Congress, the Senate’s package of tax breaks would be extended through December 31, 2015. The Senate could vote on a measure to extend the expired tax breaks as soon as next week.