Corporate lobbyists are pursuing several moving targets with a GOP dominated House interested in giving them most of what they want (lower rates, repatriation holiday, R&D credit made permanent) and various Democrats like Senate Finance Chair Max Baucus, always a friend to the big corporations, are avidly pursuing making the credit permanent. Max Baucus and Orrin Hatch introduced legislation (S. 1577) Sept. 19 to simplify the credit, raise the value of the alternative simplified credit, and make it permanent (183 DTR G-2, 9/21/11) (BNA). Nor surprisingly, Foster, a fellow at the Heritage Foundation, thinks there is support in Washington for both corporate rate reduction and making the credit permanent. 196 DTR G-3 (BNA Oct. 11, 2011).
The problem with the R&D credit is that it does not achieve its purpose. Companies get a deduction for research expenses, but the credit was enacted as a supposed stimulus to more R&D being done in the United States. However, there's no indication that it really increases R&D. Companies will do R&D with or without the credit--as they did for our years when US innovations led the world. Michael Raskin, an author of a book on the credit, agrees, noting that it would be more cost-efficient to incentivize research with direct funding programs, which already exist in several governmental departments. Id.
Corporations must be sensing a real kill of the corporate tax. When they do proffer one of their many loopholes for elimination, they demand an equivalent cut in the tax rate. But that's not a wise step for the government to take. Consider the "domestic manufacturing producting" deduction. That was added gratuitously just a few years ago. It should be eliminated because it is a hodge podge provision that gives some industries an unfair subsidy that is not available to others. But there seems to be no reason to say that eliminating the loophole must be accomplished with an equivalent tax cut for corporations. Since corporations are paying much less in taxes than they have historically--only about 2-3% of GDP--it would be more reasonable to cut the loopholes and leave the tax rates where they are.
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