Extending Tax Provisions, Increasing Economic Growth

Bret Wincup photo

A House subcommittee hearing today focused on the issue of extending temporary business tax measures that influence investment and business decisions in the U.S., and ITI pressed for quicker action by the Congress to move the legislation into law.  ITI’s Bret Wincup takes a look at the issues, and you can see the formal statement that ITI provided to the subcommittee. 

In recent months, there has been a lot of discussion about reforming our tax code.  There is bipartisan agreement that significant changes to the current tax system have to be made to help revitalize economic growth and job creation, but disagreements over the content of comprehensive tax reform remain.  Against this backdrop, the Subcommittee on Select Revenue Measures held a hearing today to discuss how Congress should evaluate certain existing, temporary tax provisions, commonly called the extenders, that either expired this past December or will expire later this year.  

Without action by Congress on tax extenders, the fragile economic recovery will be set back.  Indeed, failure to act means job-creating provisions could be left off the books for at least two years, at a time when our country sorely needs to use every method available to boost employment.  We compete in a global marketplace, and our chief economic rivals are not standing idly by.  They are investing in research and innovation.  They are strengthening their economic foundation.  And they would love for Congress to drag their collective feet and not pass these extenders.  But the American people cannot afford any further delay.

The tech sector views three tax extender provisions as fundamental.  These are measures with strong bipartisan support – measures that help businesses to better plan and put more people to work. 

Firstly, extending the R&D credit should be a no-brainer for policymakers.  This tax incentive has an unassailable track record of spurring economic growth, and 70 percent of the economic benefits of the tax credit correspond to the salaries of workers doing research in the U.S.  The incentive is inextricably linked to the innovations in technology that our country has produced during the past 30 years. 

Similarly, the tech sector supports the extension of the exception under Subpart F for the look-through treatment of payments between related controlled foreign corporations (CFCs) and the corollary exception for active financing income.  These provisions admittedly sound highly technical, but they are crucial for American companies trying to compete abroad. 

Studies have shown that an increase in FDI (foreign direct investment) by U.S. companies leads to an increase domestically in jobs, investment, wages, R&D spending, and exports.  This is a critical lifeline for America’s small businesses.  American companies that operate globally directly sustain more than 22 million U.S. jobs and 41 million indirectly.  The average U.S. company operating globally buys $3 billion in goods and services from small businesses here at home, with a cumulative impact of more than $1.52 trillion.  The look-through and active financing provisions will foster new opportunities for America’s multinational corporations and, in turn, for America’s small businesses.

There is no single solution to our country’s economic challenges.  It will take a mix of approaches and strategies to strengthen the skills of America’s workforce and spark new investment and new businesses that put more Americans in good, high-paying jobs.  Extending tax provisions would be a welcome boost to our country’s economy, and would produce jobs at a time when we most need them.

-- ITI’s Director of Government Relations Bret Wincup specializes in tax and trade issues. 

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