Statement Of Senator John McCain On The Economic Growth Through Innovation Act Of 2009

Mr. McCAIN. Mr. President, today I introduce the Economic Growth Through Innovation Act of 2009. This bill would make permanent the current research and development tax credit. Otherwise, this tax credit will expire on December 31, 2009.

A permanent credit would provide an incentive to innovate, and remove uncertainty now hanging over businesses as they make research and development investment decisions for 2010 and beyond. The research and development tax credit was first established in 1981 and has been extended and revised repeatedly since then. Failure to make the tax credit permanent has led to reduced investment in research, which has led to fewer jobs being created in the United States. Tax policies have a powerful influence on business investment and hiring decisions, and that is why I have chosen to introduce this bill on the first day of the 111th Congress. Additionally, both President-elect Obama and I were in full agreement during the campaign that making permanent the research and development tax credit is critical to spurring investment in developing technologies.

In the 1980s, the U.S. was a leader among nations for providing the most generous tax treatment of research and development. By 2004, the most recent study, the United States had fallen to 17th, which explains why the U.S. is no longer considered by many to be the world leader in innovation and technology. A permanent, meaningful research and development tax credit will ensure that businesses keep funding research and development, which may lead to numerous new discoveries in the U.S. such as fuel-efficient vehicles, cancer treatment or the development of clean energy.

Studies have shown that on average, companies invest $94 in research and development for every $6 the Federal government invests in the tax credit. While I understand that some economists have estimated this tax credit may cost many billions of dollars in tax revenue to the Federal government, I believe it is essential to spurring an economic recovery.

Companies of all sizes, in a wide range of industries, have taken advantage of the research and development tax credit during its existence. According to a recent study by Ernst & Young, 17,700 businesses claimed $6.6 billion research and development tax credits on their tax returns in 2005, the most recent year available. Almost a quarter of these businesses were small businesses with $1 million of assets or less, and almost half were businesses with assets of $1-$5 million, which is the lifeblood of the U.S. economy. Firms in the manufacturing, information and services sectors claimed the majority of the credit, and the states with the highest number of companies reporting research and development activity include those states that have been hit the hardest by the depressed economy such as Michigan, Pennsylvania and California.

Congress has endorsed the credit by extending it 13 times since enactment, and several times the credit has been reinstated retroactively. Yet, it has never been made permanent, creating a less certain investment atmosphere. With so many Republicans and Democrats in agreement that this tax credit must be made permanent, including President-Elect Obama, I hope this bill will be given swift consideration and signed into law during the first few months of 2009 to increase our nation's ability to innovate, create jobs and improve our sagging economy.

Source