Can the American Growth Act Grow America?
No doubt, there are lots of strategies that can help lead a country out of an economic downturn—and the R&D tax credit is always one of them. In fact, Ronald Reagan first introduced the credit in 1981 to help pull the U.S. out of a hard-hitting recession. Years later, Barack Obama turned to the R&D credit to do the same.
Well, here we are in another economic crisis and, no doubt, leaders will recognize the R&D tax credit as a critical tool once again. But even though the R&D tax credit is the most generous corporate tax credit in America, some policymakers feel like it’s still not enough—particularly when you consider that thanks to the coronavirus, the economy is facing yet another uphill battle.
The American GROWTH Act, which was proposed by Congressman Kevin Brady of Texas, and U.S. House Minority Leader Kevin McCarthy, of California, is specifically designed to expand the credit and boost domestic investment. If passed, the American Growth Act would increase incentives for some qualifying activities, like medical research, cancel the five-year amortization law, and double the credit.
Relief for Start-ups
Entrepreneurs are at the heart of any growing economy and the American GROWTH Act recognizes that by increasing incentives for start-ups. The proposal expands the ability to take the credit against payroll taxes. Right now, the credit allows start-ups to get 20 percent of qualified research expenses above a base level (determined by its history of spending). The American GROWTH Act proposes increasing the 20 percent to 40. And if firms choose the alternative simplified credit, which currently offers 14 percent of qualified research expenditures over 50 percent of a three-year average spending base, then the proposal increases the credit to 28 percent. Right now, start-ups can use $250,000 of the credit to offset payroll taxes, but under the American GROWTH Act, firms would be able to increase that to $500,000. Another benefit? Firms would be able to deduct $20,000 in start-up costs, right off the bat. Compare that to now, when they can deduct the amount of expenditures exceeding $120,000.
Benefits Medical and Pharmaceutical Companies
The American GROWTH Act offers specific benefits to medical –supply and pharmaceutical companies, as well. For example, pre-revenue companies would be allowed to take the R&D tax credit as a refund. Meanwhile companies that perform infectious disease research would receive a 14-percent bonus R&D tax credit on top of the regular R&D tax credit. Plus, a domestic medical and drug manufacturing credit provides a 10.5 percent tax credit on the net income from the sale of active pharmaceutical ingredients.
Grows the Economy
The American GROWTH Act could prove very beneficial to the R&D tax credit—and to the companies that benefit from it. The credit promises to motivate start-up companies to create jobs and incentivize medical companies to innovate during the COVID-19 pandemic. Also, given that it addresses manufacturing, it could likely bring these jobs back home. Furthermore, the bill’s proposal to repeal the five-year amortization law brought about by the Tax Cuts and Jobs Act (TCJA), motivated companies to spend now because they stand to benefit sooner. In fact, if the American GROWTH Act passes, then we all stand to benefit.