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R&D tax credits knocked out in Congressional punch-up

'This is the absolute worst that could happen'

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Tech vendors had another reason to cry into their beer today, as it emerged that the congressional logjam that has scuppered the White House’s $700bn bank bailout has also iced the restoration of their beloved R&D tax credit.

Similar breaks on the development of renewable energies have also run into the ground, as Congress spends the Jewish New Year recess thinking of who it will blame for its decision to vote against the Paulson plan to underpin a sinking Wall Street.

The R&D tax credit can cover up to 20 per cent of certain R&D spending by high tech firms, but expired in December - tech bigwigs have been screaming at Washington to get their fingers out and renew the scheme ever since. Craig Barrett slammed polls last month saying Washington refused to recognize that “investment in the future is essential".

Clearly someone heard Barrett in Washington and the credit was duly restored in a Senate vote last week. Tax breaks for the development of solar and wind energy schemes were also given the go ahead, only needing agreement from the House of Representatives before being signed off by the Lame Duck in Chief.

But the House of Representatives – who, unlike the Senate, all face re-election next month – are refusing to play ball, with some demanding that the benefits for tech vendors are offset by a little pain somewhere else, in the form of increased tax revenues elsewhere.

Throw in the excitement amongst members that they had an opportunity to bring the US financial system - and by extension the world’s - to its knees by torpedoing the Paulson plan, and unsurprisingly the tax breaks bill fell right to the bottom of the agenda.

The impasse doesn’t mean only high tech firms take it in the wallet - a range of tax breaks affecting individuals and businesses are still up in the air. Apart from causing tax-planning problems for everyone from school teachers to Craig Barrett, the massive US tax industry – from the IRS to software vendors to tax accountants - is just a few months from the end of the tax year with no idea what breaks will, or won’t, be doled out.

According to the Wall Street Journal, Ralph Hellmann at tech lobby group the Information Technology Industry Council said: "This is the absolute worst thing you could do in this current economic climate."

Well, there might be worse things. Like perhaps ignoring market oversight for years then throwing a hissy fit and flouncing off on holiday when it finally emerges what looked like a booming economy was built on something less stable than sand. ®

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