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The R&D credit: There are better stimuli

January 26. 2013 10:20PM

The state's effort to stimulate economic growth this year will begin with the expansion of the research and development tax credit. If it ends there, do not expect much stimulation. That expansion is unlikely to produce the broad impact so many politicians of both parties suggest that it will.

The state offers manufacturers a research and development tax credit of up to $50,000 per business. Funds for the credit are capped at $1 million a year, and the credit expires in 2015. Making the credit permanent and raising the cap to $2 million have such broad bipartisan support that a bill to do both, the very first bill filed in the state Senate this year, has 21 Senate cosponsors. There are only 24 senators.

Gov. Maggie Hassan has been visiting manufacturers in the state to promote SB 1. "The doubling of the research-and-development tax credit, and its permanent extension, will send a strong signal to existing New Hampshire businesses and prospective businesses that the State of New Hampshire will continue to work with them to encourage innovation and invest in our economic future," she said in a statement earlier this month.

But as far as tax policy goes, making an extra $1 million available in $50,000 chunks to businesses that employ about 10 percent of private sector workers is hardly a robust recovery plan. According to state data, there were 631,100 private-sector employees in New Hampshire as of December. Only 66,200 worked in manufacturing.

Legislators could do far more good for the economy if they lowered the business profits tax for everyone. Another change with widespread positive effect would be to let businesses "carry forward" their operating losses for 20 years and "carry back" those losses for three. Most states allow businesses to deduct net operating losses for up to 20 years and even do so for a few years' worth of previous tax returns. New Hampshire allows losses to be carried forward for only 10 years and allows no carry back. The state also caps the carry-forward deduction at $1 million, whereas most states have no cap.

These changes would provide a much more widespread economic stiumulus than expanding the R&D tax credit. Gov. Hassan should push for them.

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