Another Obama Corporate Gimmie: Broadens Corporate R&D Tax Credits

Obama is looking more and more like an ideal Republican president with every passing day. The Washington Post reports that the Administration is on the verge of giving companies like Dow Chemical, Boeing, and Lockheed Martin hundreds of millions in tax breaks, which drops directly to their bottom line.

The concession involves research and development tax credits. They were launched under President Reagan in 1981, intended to be a temporary program, out of concern that the US was falling behind Japan in innovation. The problem with this scheme is that it frequently winds up subsidizing activities that companies would have engaged in anyhow. And notice how it did nothing to stop the dismemberment of great corporate research efforts like Bell Labs.

Here’s the gist of the account:

Marty Sullivan, chief economist for the nonprofit Tax Analysts, called the new rules “a significant giveaway to business.”

“The IRS is under a lot of pressure from lobbyists to be accommodating,” Sullivan said. “So over the years, business has been successful in pushing that boundary out.”…

Currently, the IRS forbids companies from claiming tax breaks for costs associated with experimental products they ultimately sell. But after losing a number of recent lawsuits, the Treasury Department proposed last fall to let firms claim the credit for prototypes of new products, even when the companies are able to sell the prototypes themselves to their customers.

Any tax benefits under the new rules would be retroactive, permitting firms to reduce tax bills dating back years….corporate tax lawyers who are paid to follow such changes say the new rules could prove to be a bonanza for a wide range of companies whose expenses are not currently eligible.

“Almost anybody who is making, designing things in the United States potentially could qualify for some of these benefits,” said Jeremy Fingeret, senior managing director at Alliantgroup, a tax consulting firm. “It’s a very, very broad scope.”

The big change is that Obama not only wants to make this credit permanent (not as big a deal as you think; huge portions of the tax code are routinely re-approved every year) but wants to extend it as described above. IRS officials appear to have been put in the embarrassing position of trying to position this gimmie as a clarification. But the driver appears to be that companies kept suing to get credit for deductions that the IRS nixed, most importantly, trying to get credit for developing what they designate as experimental products that they are actually able to sell, such as prototypes. And even though the IRS appeared to lose these cases enough of the time to lead it to pull in its horns, this is likely to be a case of the IRS simply being outgunned. Tax litigators are one of the highest paid types of attorneys; I met one in the 1980s who billed at $1000 an hour, and I shudder to think what current charges would be.

One has to wonder how many giveaways Obama will engineer before he leaves office. Presidential libraries are expensive, after all, so you gotta keep those donors happy.

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  1. R Foreman

    This is the only way Barry can imagine to get money into the economy.. corporate give-aways which funnel the money to a small percentage of the population. Barry’s imagination is lacking. Spending by 2% of the population can’t sustain a recovery.

    1. NotTimothyGeithner

      I don’t think Obama cares that much just getting critics off his back without angering his heroes. Going to Reagan smacks of the way Democrats until recently would make major concessions on abortion to win right wing support. Obama is merely the irritating local chamber Democrat who made it into the white house.

      His campaign reiterated every promise of Hillary which were banal to start, and he spoke of his admiration of reagan. Throw in some bland platitudes and occasional hippie punching or complete misdirection and you have an Obama speech. It’s not his lack of imagination though. He has had plenty of time to copy an idea. Obama doesn’t care except about shallow awards and blind praise.

      1. different clue

        And the money he will recieve after leaving office from well-served and grateful clients and patrons.

        1. NotTimothyGeithner

          Obama will be dropped at the curb. The bum won’t get a dime be he won’t have any power or popularity. Bill at least in theory could get demo elected and had the spectra of Hillary which was the Clinton is tax didn’t work too hard in 04 or against bush in general.

          Obama will be headlining the democratic equivalent of local tennis tournament at the country club. Hollywood will shun him if they think the brand is at risk. The Heat were in a video with Michelle not calling for people to sign up for ACA.

  2. psychohistorian

    I am an advocate of basic R&D. It is too bad that it has become just another way to funnel more money to the plutocrats as they take the intellectual property developed and screw the rest of the world by playing countries off against each other for the cheapest labor to produce the latest got-to-have technology.

    I am NOT talking here about the consumption crap that is made and marketed as got-to-have……I agree that sometimes it is hard to tell the difference.

  3. Ulysses

    “One has to wonder how many giveaways Obama will engineer before he leaves office” Yes! Let’s hope that our continued vigilance on TPP/TAFTA will prevent a really dangerous one!

  4. TheCatSaid

    R&D tax credits are also a gaping loophole in Ireland. It’s an invitation for abuse, and the large multinationals probably benefit the most and need it the least. In Ireland private agreements were made with major multinationals regarding allowing various activities to be counted as R&D expenses. For some reason the media avoids talking about these “details”. As in the USA, real tax positions are revealed and useful for meaningful comparison only when things like R&D tax credits are also taken into consideration–not just the basic corporation tax rate.

  5. j gibbs

    The largest corporations don’t pay any significant taxes as things are. I wonder which ones found themselves needing this credit? Never met a rich person who didn’t feel he needed even more money. What they really need is a tax credit for any personal income taxes otherwise payable in an amount exceeding their weight.

    Let’s see, you made $25,320,271, but you only weigh 185? Your credit is $7,342,693. How’s that?

  6. curlydan

    the IRS is severely outgunned…kind of like the SEC and others. The IRS recently had its budget cut in the face of new responsibilities like administering the upcoming Obamacare penalties. It’s about as even a battle as the Alamo.

    1. Randy

      They don’t seem outgunned when they’re up against a working person trying to make a few extra bucks doing some work on the side.

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