Companies lobby for U.S. R&D tax credit

* Credit is set to expire on Dec. 31

* Companies say the credit preserves U.S. jobs

By Kim Dixon

WASHINGTON, Oct 21 (Reuters) - Companies with big research and development spending, including CA (CA.O) and Dow Chemical Co (DOW.N), are lobbying U.S. lawmakers to extend and broaden a multibillion-dollar tax credit they say will preserve Americans jobs.

Companies fear the 20 percent R&D credit, available only for work done in the United States, will get buried as Congress juggles health care and other competing priorities. The tax credit expires on Dec. 31 and has fallen by the wayside before.

"We're worried we're going to be left hanging," said Janet Boyd, director of government relations for tax at Dow Chemical.

President Barack Obama has proposed making the credit permanent, which would cost about $68 billion in lost tax revenue over a decade.

A group of about 300 companies wrote a letter to all members of the U.S. House and Senate this week urging them to broaden the credit and make it permanent.

Legislation backed by the companies, sponsored by Democrat Max Baucus and Republican Orrin Hatch in the Senate and by Democrat Kendrick Meek and Republican Kevin Brady in the House, would be more pricey.

In addition to making it permanent, the bill would boost the rate on a increasingly popular simplified form of the credit from 14 percent to 20 percent.

The Obama administration has not taken a position on the bill.

Boyd and others say the credit is less generous than those in other countries, and this is forcing companies to move jobs overseas.

Not everyone is convinced, though, that tax policy is the best way to promote jobs or growth.

A tax reform panel convened by the Bush administration several years ago suggested scrapping such corporate incentives altogether and instead lowering the corporate tax rate.

"I'm not terribly impressed by the jobs argument," said Eric Toder, an economist with the Tax Policy Center, a group jointly sponsored by the Brookings Institution and the Urban Institution, both left-leaning groups. "The argument for this is that research has social value and therefore should be encouraged."

Karen Myers, vice president for global government affairs at CA Inc, formerly Computer Associates, said the current uncertainty makes it impossible for companies to plan, not knowing if the tax credit will be available.

The credit has expired several times before and then been extended after expiration, sometimes retroactively. Companies say this wreaks havoc on their bookkeeping and planning.

"If the credit expires, we cannot assume that it will be extended," Myers said.

The United States spends more on R&D as a percentage of gross domestic product than all members of the European Union, according to the nonpartisan Joint Committee on Taxation in Congress.

About 70 percent of the companies that use the credit are in manufacturing, according to JCT.

The credit is not refundable but can be carried forward, which helps companies that are losing money. (Reporting by Kim Dixon; editing by John Wallace)