[author: Lauren M. Donoghue]

On May 9, the U.S. House of Representatives passed the American Research Competitiveness Act of 2014, which would make permanent the expired research and development (R&D) tax credit. The bill, H.R. 4438, passed overwhelmingly by a vote of 274-131, with nearly all Republicans and almost half of Democrats voting in support. The R&D tax credit was originally passed in 1981 and has been renewed fifteen times. It last expired at the end of 2013, along with a list of the other so-called "tax extenders" that Congress routinely passes, often retroactively.

The tax credit serves to incentivize companies to invest in innovation in the United States. The House-passed legislation would also increase the alternative simplified credit (ASC) rate from 14 percent to 20 percent, further incentivizing U.S. companies to increase R&D spending.

Rep. Kevin Brady (R-TX), the lead sponsor of the legislation, contends that the United States is losing R&D investment to other countries because many countries offer companies stronger incentives to invest than the United States offers. Rep. Brady says that making the R&D tax credit permanent is vitally important so that companies can confidently move forward with research investments in the United States, which they have been unable to do given the tax credit's lack of permanence. House Ways & Means Committee Chairman Dave Camp (R-MI) called for the bill's passage in order to insert some stability in the tax code and added that "short-term tax policies aren't helping businesses hire new workers or grow the economy."

While President Obama supports making the R&D tax credit permanent and included a provision to do so in his recent budget proposal, he has threatened to veto the House-passed bill because it doesn't include offsets and would consequently add to the federal deficit. Rep. Brady counters that Congress has never included such an offset in a bill to extend this tax credit.

Despite its bipartisan support in the House, along with support from organizations such as the National Association of Manufacturers, the American Research Competiveness Act is unlikely to be taken up in the Senate. In the higher chamber, Senate Finance Committee Chairman Ron Wyden (D-OR) proposes to extend the R&D tax credit for two years as part of a larger tax extenders bill (the EXPIRE Act). The Senate is expected to continue debate over the tax extenders package when it returns from recess the week of June 2. While the R&D tax credit is likely to be renewed before the end of this year, it remains to be seen whether it will be a permanent fix or yet another short-term one.