President Obama is touting a package of tax incentives for businesses as a strong plan to boost the economy, but companies in the Twin Cities are taking a wait-and-see approach.
Obama announced proposals Wednesday to expand and permanently extend a research and development tax credit that lapsed in 2009, allow businesses to write off 100 percent of their investments in equipment and plants through 2011 and pump $50 billion into highway, rail, airport and other infrastructure projects.
But while local businesses like the idea of incentives to invest in new projects that could create jobs and boost the economy, many say the climate remains too uncertain in the near term for them to ramp up activities. Some also question whether the incentives are big enough.
"I don't think any of the president's proposals are going to be the magic bullet that turns our economy around on a dime," said Scott Anderson, a senior economist at Wells Fargo. "The amount of dollars we are talking here aren't big enough to fundamentally alter our view on the U.S. economy."
While Minnesota's economy has shown signs of recovery faster than other areas of the nation with the state's unemployment rate of 6.8 percent in July well below the national rate, analysts say it is far from a full recovery. More than 200,000 people are still unemployed in the state.
Analysts say R&D tax credits tend to favor established, profitable companies that already invest heavily in research, such as Fridley-based medical device giant Medtronic.
Kevin Smith, tax managing director of accounting firm KPMG, said the proposed tax credit might be effective in causing larger companies to "think twice" about moving research and development abroad, adding it would help "sustain what we have right now."
"Whether [it] provides a further boost, that is debatable," Smith said.
Still, some larger Minnesota companies say they believe the proposed credit would help their businesses and are closely watching to see whether the legislation passes.
Obama's tax plans are controversial in part because he is also proposing to let Bush-era tax breaks for the most affluent Americans lapse.
Medtronic said in a statement that tax credits have helped to encourage innovation and job growth in the medical technology industry.
"Making the R&D tax credit permanent could reduce the tax burden on business spending that has the most significant positive impact on productivity."
Bennett Morgan, president and chief operating officer of Polaris Industries Inc., said the proposed tax credit is "a positive enabler" that encourages investment.
Although the Medina-based maker of sports vehicles did not disclose its specific research and development plans for the year, it has said total operating expenses, which include R&D, will increase in absolute dollars and as a percentage of sales this year over 2009.
Enough incentive?
Others are waiting to see signs of improvement in the economy before they boost spending in ways that would bring tax breaks. Douglas Frame, president of Minneapolis-based manufacturer Phoenix Solutions Co., said he supports tax breaks for research and development for businesses, but doesn't expect it to lead to an immediate boost in jobs.
"I think it's a good idea," Frame said. "We would take advantage of them if we saw there was sufficient growth in the economy that affects us."
Many businesses say the key factor in their spending decisions is the availability of good business opportunities, not tax consequences.
The Minneapolis-based biotech and hematology company Techne doesn't see a meaningful effect on hiring from the tax credit on research and development. John Syverud, assistant director of business development for Techne's subsidiary R&D Systems, said the subsidiary already invests about 10 percent of its revenue in new product research.
"Our spending is driven by our interest in maintaining the growth of the company, as opposed to being driven by tax policy," Syverud said.
Entrepreneurs seek help
Some say Obama's plan should include more for start-up businesses that are developing new technologies. Such companies generally don't have any profits for the government to tax, though in some cases they can tap credits to use past losses to reduce taxes once they become profitable.
Scott Hughes, chief operating officer of the White Bear Lake start-up Visiam, said that's the situation for his company, which supplies processing technology for municipal solid waste management groups. Hughes is trying to raise $2 million in venture capital and angel investment to continue building toward profitability.
"The economy needs money into the companies, not more tax breaks," Hughes said.
At St. Paul-based vaccine developer Syntiron, CEO Joe Shaw nonetheless called the research and development credit a benefit, adding that investors will know they would get more money back when his start-up becomes profitable.
"It is advantageous, no question," Shaw said.
Some analysts also say that even if the proposed credits wouldn't necessarily generate jobs immediately, ultimately they could help sustain research and development in the United States.
"The fact of the matter is, China, India, Europe, Singapore ... they are all putting tremendous effort into developing an advanced knowledge production engine in their communities, which are facilitated by tax credits," said Dale Wahlstrom, CEO of the BioBusiness Alliance of Minnesota. "Whether we like it or not, our competitive regions of the world are leveraging R&D tax credits to get knowledge creation."
The Associated Press contributed to this report. wendy.lee@startribune.com • 612-673-1712 sfeyder@startribune.com • 612-673-1723
