Large scale tax reform hasn’t occurred in the United States since 1986, and with the GOP in control of Congress and the White House, now is the best chance to see major legislation move on this issue. A recent statement by Congressional and Administration leaders on tax confirmed their plans to move forward on a plan in the fall.
With the dismissal of a controversial Border-Adjustment-Tax (BAT) provision, the principle tax writers in the federal government now appear to be on the same page for a major push. While some in industry had expressed support for a BAT scheme, its removal from the discussion paves the way for greater agreement in how to move forward.
With the tax plans still including a push to bring the U.S. in line with the rest of the world by moving to territorial tax system, companies in the U.S. stand to gain from a more streamlined tax regime. In addition, the current tax of the tax plan includes repatriation of foreign earned profits at a lower rate than the top line corporate tax rate.
R&D Tax Credit Has LegsThe R&D tax credit has proven to be an effective incentive to stimulate research investment and help maintain and create high-paying jobs and activities that stimulate positive economic benefits. As such, the R&D tax credit is widely supported and will most likely be retained in any tax reform scenario.
The credit, however, can be made more effective by reducing the cost of compliance, which should drive innovation and increase investment and productivity. To do this, SEMI supports H.R. 2821, the Research and Experimentation Advances Competitiveness at Home (REACH) Act, which would enhance and simplify the R&D tax credit by bringing the Alternative Simplified Credit (ASC) in line with the regular credit by adjusting it from current 14 percent up to the same 20 percent as the regular credit.
Cooperation and bipartisanship will be criticalTax reform usually only comes about once in a generation. Getting members from both sides of the aisles to work together on this issue won’t be easy, but it will be necessary to make lasting reforms. Likewise, getting agreement from the House, Senate, and White House on a tax reform plan comes with a lot of potential landmines as well. It is clear, however, that the current U.S. tax system is out of date and in need a major update.
SEMI works in Washington, D.C. on behalf of its members to inform the debate as it impacts our industry and works to implement changes in order to improve the U.S. innovation ecosystem. If you’d like more information on how SEMI is working for its members in Washington, or on how you can participate, please contact Jamie Girard, senior director, Public Policy at [email protected]