Senator Coons' first bill, the Job Creation Through Innovation Act, will help jumpstart domestic manufacturing and create conditions to help businesses grow and create high-quality, high-paying middle-class jobs. Here are answers to seven key questions about the bill:
Q: What will this bill to do help Delaware?
The Job Creation Through Innovation Act will help Delaware businesses innovate, create jobs and stay globally competitive. First, it increases and makes permanent the research and development tax credit. It creates a Domestic Manufacturing Credit to provide an incentive for companies to invest and create jobs here at home. Right now many new, small businesses are ineligible for the R&D tax credit because they aren’t profitable yet, so this bill creates a new Small Business Innovation credit to provide tax relief to these businesses. Finally, it extends two programs created by the Recovery Act designed to promote clean energy technology and investment. These incentives were heavily used and critical to energy project developers and Delaware manufacturers, as well as to the production of clean and green energy, and the expansion and retrofit of clean and green production capacity.
Q: Why is a permanent R&D tax credit needed?
The R&D tax credit has been temporarily extended 14 times since it was enacted 30 years ago and it is currently set to expire at the end of the year. This lack of permanence is problematic. Many R&D projects have multi-year planning horizons. If firms aren’t assured they will benefit from the credit over the expected life of an R&D project, they are unlikely to include it in their determination of annual R&D budgets. This renders the credit essentially irrelevant, given its purpose is to incentivize firms to invest more in R&D than they otherwise would have.
Q: Why is research and development important to the U.S.?
The formula for our economic success has long been the unstoppable combination of an innovative citizenry and investment in cutting-edge research. This is what generates companies that invent new products, often high-tech and research-driven products, and, along with these, create skilled jobs right here in the United States. Many of these jobs are in the manufacturing sector. According to the National Association of Manufacturers, the average manufacturing worker in our country earned roughly twenty-five percent more than workers in all other sectors – that’s over seventy-two thousand dollars last year, including pay and benefits, while the average non-manufacturing worker earned less than fifty-nine thousand. Manufacturing jobs, created as a result of R&D investment and innovation, mean higher wages and better benefits.
Q: How does the Domestic Manufacturing Credit work? How would you target this at manufacturers?
The provision incentivizes keeping jobs in the United States by increasing the existing R&D tax credit for companies that produce most of their goods domestically. The Domestic Manufacturing Credit would increase incrementally to reward a higher percentage of domestic production – an additional 2 percentage points for 50% to 60% of sales from domestically-produced goods; up to a 10 percentage point increase for companies with 90% to 100% of their receipts from domestic production. For example, a company with 100 percent domestic production that would normally receive a 20% R&D tax credit would receive a 30% credit under this proposal.
Q: Why does the legislation include a new Small Business Innovation Credit?
Under current law, the R&D tax credit is non-refundable, which is to say that only profitable firms can benefit from credit. This poses a special problem for small, fledgling research-intensive firms. In recent decades, numerous commercially successful technological innovations have originated with such firms. Many of these firms spend substantial sums on R&D during their first few years, despite experiencing large financial losses. For this reason, the legislation would create a new small business innovation credit by allowing firms with 500 employees or less to claim a new, refundable R&D credit.
Q: What Delaware businesses could benefit from this proposal?
Delaware firms, both small and large, that invest significantly in R&D in the United States and create high-paying jobs associated with that R&D stand to benefit the most from this legislation. Delaware’s agricultural, biotech, chemical, energy and manufacturing sectors rely on the R&D tax credit to grow and create jobs.
Q: There are a number of energy tax incentives in place, why are the two energy incentives so important to Delaware?
It is important to send a longer more certain signal if we are going to reduce our dependence on fossil resources by producing clean energy in the U.S. The renewable energy production and advanced energy manufacturing tax credits were critical to keeping clean energy projects and jobs in place in the last several years. The incentives for in the Act work in tandem to send that signal.
During the meltdown, the tax equity market was frozen which threatened to sideline thousands of renewable projects. Through the Treasury Grants Program for renewables, Delaware companies have been able to support dozens of solar and wind projects. At the same time, Senator Coons wants the U.S. to be a leader in sourcing products for renewable energy from domestic manufacturers. Thus, the advanced energy manufacturing credit supports a range of clean tech manufacturing projects such as building materials, wind turbine towers and blades, solar equipment, batteries and many other clean tech projects.