December 2006• January 2007 • Vol. XXV No.2 • An Arnold Publication

From the Editor—

R&D Tax Credit Gets Temporary
Death Sentence Reprieve. . .

Such was the case in December when the U.S. House of Representatives and Senate procrastinated until the very last minute before passing H. R. 6111, which, among other things, included a temporary extension of the tax credit to businesses for research and development. The Bill was passed by the House on December 9, and was finally ratified by the Senate on December 11, but not until several cliff-hanging battles over amendments ensued.

Most industries and the President were pushing for the tax cuts and credits to be made permanent, but when the bill finally passed, they breathed a sigh of relief, because they figured that half a life is better than no life at all. As passed, the R&D credit extends retroactively back to January 1, 2006 and forward to December 31, 2007. Though the reprieve is temporary, the year extension gives industry groups another year to lobby for a permanent extension.

Why was this legislation so important to the metalworking industry?
Rob Akers, the National Tooling and Machining Association’s (NTMA) Chief Operating Officer, said in November of the tax credit, “The R&D tax credit plays a vital role in ensuring that the tooling and machining industry maintains a competitive edge. Many of our member companies have a long and successful track record of performing R&D which helps to develop new products, tools and technology, as well as increase productivity to compete against our lower-cost foreign competitors.”

Another reason for the credit’s extension is simple. If we want the U.S. to remain competitive, we have to encourage research. The fact is that many of our trading partners (competitors?) give their businesses permanent and much stronger credits than we do. The bottom line is that for a tax credit to be effective it has to have permanency. Credits that are here today and gone tomorrow simply can’t be trusted. When the congress gets back in session, it needs to get off its duff and pass permanent credits.

Who benefits from these tax credits?

Well, as far as I can tell, we all do in countless ways. For instance, new life-saving drugs, new aerospace technology, more work for everyone.

The NTMA reports that nearly 60% of all private U.S.-based R&D is performed by manufacturers without government funding, except for tax breaks. They also report that more than 75% of tax credit dollars go directly to R&D wages and salaries, supporting thousands of research jobs, with the remainder paying for supplies.
So, if you care about the future, this editor strongly urges you to call or write your senators and representatives and ask them to make the credits permanent, something industry can rely on.

I love suspense in my movies and TV shows, but I can definitely do without it in real life.
This was a death sentence that at least got a short-term reprieve.

For that, I’m thankful.

                                                                                C. H. Bush, editor