Economic Development Agencies and The Startup Credit

The typical company being served by an Economic Development Agency meets the exact qualification standard for the startup credit.

Economic Development Agencies & What Their Primary Goals Are

Economic Development (ED) Agencies, although public entities, are highly focused on producing measurable results/metrics because their funding (that is, their jobs) from state, county, city and/or university entities depend heavily on their results.

The key metrics that ED Agencies are measured by:

  1. Number of jobs created by the companies they serve
  2. Number of dollars in follow-on capital which refers to investment (*and/or grant funding*) procured by the companies they serve

How The Startup Act Assists Economic Development Agencies In Reaching Their Goals

Though the Act doesn’t directly speak to grant funding, know that grants are easier to come by if a company is well-capitalized and has the credibility that comes with having procured capital [i.e., implied vetting]. Plus, many grants require matching capital from private/commercial investors.

The article, The “Startup Act”, Catching the Economic Development Winds, was written to resonate with Economic Development Agencies because it addresses how, in practical ways, the Act’s incentives can make both job creation and venture capital investment much less challenging than it would be without the incentives.

The clear intentions of the Act’s incentives are:

  1. Job creation, especially technology-based jobs
  2. Investment capital flowing into younger technology-based companies

These intentions line up perfectly with an ED Agency’s metrics.

It is completely possible that any given ED Agency isn’t fully aware of the Act’s incentives and is therefore not striving to meet its metrics with all of the tools available.  

Our Objective

The objective is to “inform and educate” these agencies so they can “inform and educate” their client companies (and potential investors in those companies). This would likely involve connecting client companies with the resources, probably in the form of professionals/experts, that can dig into their particular situations to see about realizing the benefits intended by the incentives.

GMG Savings Advisors can offer the ED Agency to connect its client companies with the experts/professionals that can make both increased job creation and follow-on capital a reality.

The Permanence of the R&D Tax Credit, a Reality?

The R&D Tax Credit has been in existence for the past 33 years, having been extended by Congress 15 times since it was created in 1981. On Wednesday, May 20th the U.S. House of Representatives passed a bill known as the “American Research and Competitiveness Act of 2015” or H.R. 880, to make the federal research and development tax credit permanent. The bill passed with a 274-145 vote, indicating that the bill has support from both parties however it still needs to make it through the Senate and many hurdles await the bill there. Republicans hold the majority in the Senate so the bill seems favorable to pass but President Obama has threatened to veto.

The threat of veto is based on the belief by the White House that the credits estimated 10 year cost of $180 million in lost tax revenue should be offset elsewhere. It is hard to anticipate how President Obama will act as he has expressed both positive and negative remarks in regard to the bill. Whether President Obama chooses to veto the bill or not, Congress could override the veto by a two-thirds supermajority vote of both the House and Senate however, a supermajority vote is not easily obtained.

Looking past the technicalities of governmental red tape, there is cause to be optimistic because this is now the second year in a row that a stand alone proposal to make the R&D credit permanent has been not only been seriously considered but successfully voted upon in at least one of the two houses. Additionally, the bill is receiving support from both parties which is a necessity for it to succeed. These steps of forward momentum lead us to believe that even if it is not this year, the the outlook of the R&D Tax Credit becoming a permanent part of the U.S. tax code is very favorable.

Making the R&D Tax Credit permanent would boost the confidence of American businesses to invest in the development of new technologies leading to the creation of quality jobs. The bill would also make the credit easier for small businesses to obtain by allowing them to use it to offset tax liability, including the alternative minimum tax. Many believe as Texas Rep. Kevin Brady the writer of this bill does that this bill needs to be passed and become law so that the United States can remain competitive in innovation and within the world wide economic marketplace.