Tax Policy: Information on the Research Tax Credit

GAO discussed the research tax credit. GAO noted that: (1) in tax year 1992, corporations earned slightly over $1.5 billion in research tax credits; (2) most of the corporations were large manufacturers of chemicals, electronic machinery, motor vehicles, and nonelectronic machinery; (3) there is no estimate of the net benefit to society of the additional research the credit has stimulated; (4) the credit's fixed base can become too generous for some taxpayers, which results in revenue losses, and too restrictive for other taxpayers, which results in less research stimulation; (5) if the credit is extended, the base may need to be adjusted to better reflect the corporations' actual research spending behavior; (6) the Internal Revenue Service's administration of the credit has been difficult, mostly due to an unclear definition of qualified research spending; and (7) although recent regulations may resolve this uncertainty, the difficulty of distinguishing between innovative and routine research remains.