R&D tax credit

On Monday a bipartisan group of Senators, led by Finance Committee Chairman Max Baucus, introduced a bill to make the R&D tax credit permanent -- technically the Research and Experimentation (R&E) tax credit. The bill - S. 1203 the Grow Research Opportunities with Taxcredit's Help Act of 2009 -- would phase out the traditional R&E tax credit and beef up the alternative simplified version created a few years ago. The credit for the simplified version would increases from the current 14% to 20%.

No word from high-tech industries on how they feel on the change. But making the credit permanent is a long over due step -- and something called for in the Obama technology policy. In past years, the credit has simply been temporarily extended because of cost issues (a short term extension counts less in the budget scoring rules). Given the current budget pressures, we will see if the "permanent" part of the bill makes it through the process.

The same problem faces what should be the next step -- adding a worker training/skills enhancement credit. Such an action to turn the R&D tax credit into a knowledge tax credit makes good policy sense. As I've argued before, if we give companies incentives to conduct research or invest in new equipment we should also give companies incentives to invest in their most valuable asset: their workers.

But a knowledge tax credit is expense. While it might be the right thing to do, it will probably fall victim to the budget deficit problem. And that would be a shame.