The U.S. House has okayed permanent extension of the R&D tax credit, but it faces an uncertain future in the Senate. Credit: Ron Cogswell; Flickr; CC BY 2.0

Last week, as we prepared to celebrate mothers across the land, lawmakers in the U.S. House of Representatives voted to make permanent a tax break for companies who invest in research and development (R&D).

Introduced in the Economic Recovery Tax Act of 1981, the R&D tax credit has expired nine times—and been extended 14 times with support from both Republicans and Democrats. It most recently expired in December 2013.

H.R. 4438, the American Research and Competiveness Act of 2014, which passed 274–131, permanently extends the close to $10-billion-a-year credit, which, according to a recent editorial by Representative Lamar Smith (TX-21), chair of the House Committee on Science, Space and Technology, is utilized by more than 20,000 businesses—many of them small—each year.

American industry is the nation’s largest performer of R&D. Data from the National Science Foundation shows that in 2012, business R&D—to the tune of $316.7 billon—accounted for 70 percent of total research and development. It also shows that industry is investing more in R&D, with 2012 figures indicating an increase of $22.6 billion, or 7.7 percent, over 2011 spending. Regardless, America is losing ground among other industrialized nations. In 2012, the U.S. ranked 27th out of 42 countries in terms of the generosity of its R&D tax incentives.

The balance of R&D expenditures comes from the federal government (12.2 percent), universities and colleges (13.9 percent), and other nonprofits (4 percent). (For some recent CTT posts on R&D spending and allocations in the 2015 proposed budget, click here, here, and here).

According to reports, the permanent extension of the credit faces an “uphill battle” in both the Senate—where similar legislation would extend it for only the next two years—and the executive branch. President Obama has said he will veto the bill, as it does not offset the cost of making the cuts permanent.

We’ll keep you posted on the back-and-forth as the bill moves toward enactment.

For an older, but still relevant, article on the eight myths that keep small businesses from claiming the R&D tax credit, click here.

Feature image credit: 401(K) 2013; Flickr; CC BY-SA 2.0