The compromise reached by President Obama and Congressional Republicans to extend Bush-era tax cuts contains several provisions that will benefit the capital investment and innovation that drive the Massachusetts economy.
The agreement includes a two-year extension of the federal research and development tax credit, which expired last year, and an extension of a provision that would allow businesses to write off their investments in equipment. Extension of the Bush tax cuts will also provide additional capital to the many Massachusetts business owners who operate as subchapter-S corporations and pay the personal income tax rate.
Unemployment benefits will be extended at their current level for 13 months, through the end of 2011, under the compromise.
“Everybody gets a little bit of something they’ve been looking for,’’ says Brian R. Gilmore, Executive Vice President of Associated Industries of Massachusetts. “We’re better off having movement instead of deadlock.’’
The federal research and development tax credit is a complex incentive that can amount to 20 percent for companies that existed during the 1980s and ratchet down to 7 percent for companies founded later. The credit has been a sort of orphan among economic stimulus measures – it has never been made permanent, has lapsed four times and been renewed more than a dozen times.
Both the R&D credit and the expensing provisions benefit key sectors of the Massachusetts economy. Durable goods make up almost $24 billion of the $34 billion in gross domestic product generated by Massachusetts manufacturers, while a recent study by AIM and the University of Massachusetts underscored the importance of research and innovation in allowing Bay State defense contractors to triple the value of their business in the past 15 years.
“We are concerned about the deficit,’’ Gilmore said, “but we really have got to put a premium in jobs and job development. It’s the only way we’re going to pay off the deficit.’’
Economists also note that other countries maintain much higher research and development tax credits, which hinders the large number of companies in Boston that compete globally.
Still the Boston Globe reported today that the compromise tax plan has few supporters among the Massachusetts Congressional delegation.
“I strongly disagree,” Representative Barney Frank, a Newton Democrat, told the newspaper. He said he would vote against the deal, although he also said it likely had enough votes to pass. “You have overwhelming Republican support and enough Democrats to do it,” he said.