Some form of both should be enacted into permanent law. Until that happens, Congress needs to retroactively extend them through at least 2016. Retroactivity is necessary to assure companies that they will eventually get the full benefit of the tax provisions even if their periodic renewal is delayed for political reasons.
The R&D tax credit was first enacted in 1981. In passing it, Congress hoped to reverse a decline in private spending on research and development as a share of GDP that began in the 1960s. This slowdown was matched by a decline in both productivity growth and U.S. competitiveness in a number of key industries. The provision gives companies a tax credit equal to a portion of their increased spending on R&D. Although the United States was one of the first countries to enact an R&D tax incentive, an ITIF paper documents that by 2012, the U.S. had fallen to 27th out of 42 countries in tax relief for R&D.
Researchers have estimated that the gross social returns from R&D are at least twice the private returns, indicating that the normal level of underinvestment is quite high. In its original proposal for corporate tax reform, the administration argued that the R&D tax credit resulted in $2 of additional research by the private sector for every $1 in lost tax revenue. It estimated that the social benefit of this additional spending ranges between $2 and $2.96. Other studies have found even larger impacts per dollar of tax revenue lost. Another ITIF report estimated that raising the related alternative simplified credit for qualified research expenditures to 20 percent (from its current 14 percent) would increase productivity by 0.64 percent and GDP by $66 billion per year. Moreover, increased federal tax revenues from the greater economic activity would exceed revenue losses within 15 years.”
For the complete story and access to the report click here: https://itif.org/publications/2015/10/26/congress-needs-pass-tax-extenders-encourage-investment-and-jobs?mc_cid=0ce91c1e87&mc_eid=d9824ce838.