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It's up to Congress

I spoke at an event on how the government can encourage innovation yesterday. And as often happens with this topic, the Q&A focused on the way Congress treats the research and development tax credit. Rather than simply setting it into law, it keeps passing small extensions for the policy. It's been doing this for 28 years. One woman asked whether this wasn't the Congressional Budget Office's fault. It was easier for Congress to justify -- and offset -- a year or two of the credit rather than its cost stretching indefinitely into the future.

That's partially true, to be fair. There are technical questions about whether the CBO should score investments and tax changes differently than it does. But it's hardly the real issue here. When politicians want to pass a large policy without paying for it, they just do it. Look at the Bush tax cuts and the Medicare Prescription Drug Benefit. When they don't want to take that step, they point to the CBO scores. And as Brad Plumer writes, floor time often gets used similarly:

Yesterday, George Voinovich (R-Ohio) told reporters: "Anybody that's being intellectually honest has got to say we do not have the time to do anything meaningful at this point in time when it comes to climate change." That's not literally true. There's plenty of time left. Months, in fact. Senators could skip the August recess, take their jobs seriously, and get to work addressing perhaps the biggest issue facing the country (and planet). Republicans could stop senselessly filibustering every little Senate procedure. The clock may be winding down, yes, but that's not because of some abstract celestial force. It's not a logical necessity. It's a conscious choice that individual senators are making.

By Ezra Klein  |  July 22, 2010; 10:42 AM ET
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At what event were you speaking? The R&D Tax credit extension is a great example of a policy that appears in every report ever written on innovation usually without any insight as to how to enact a permanant or even long term extension. With many of these retread policy prescriptions the question is less what is the right thing to do, but how to do it and/or why does it not get done? Now that would be a useful roadmap.

Posted by: horacemann | July 22, 2010 11:07 AM | Report abuse

This is one of many tax credits that repeatedly gets extended for short periods of time. The best explanation is that a short extension ensures that the affected companies will soon return carrying large checks made out to campaign funds.

Posted by: ostap666 | July 22, 2010 12:13 PM | Report abuse

It's true that in the past Congress has passed large projects without a way to pay for them. However, the perception of the national debt has changed I don't think Congress could get away with that righ tnow.

Posted by: Mazzi455 | July 22, 2010 12:24 PM | Report abuse

"Senators could skip the August recess, take their jobs seriously..."

Disingenuously said the retiring Senator

Posted by: Mazzi455 | July 22, 2010 12:29 PM | Report abuse

I used to get R&D credits when I ran a software development company. I never understood the economic logic. We were getting credits for doing something we were going to do anyway - it's hard to make a living writing code without being innovative! I don;t see why software development should have a lower tax rate than say journalism.

Even when we got the credits, I resented the time I had to spend with CPAs. I am basically conservative but you could repeal this big-tech tax loophole and spend all the money on undocumented unemployed single mothers - I really wouldn't care.

Posted by: MrDo64 | July 22, 2010 4:00 PM | Report abuse

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