GAO Uncertain About Impact of R&D Tax Credit

The General Accounting Office (GAO) has released a report, "Tax Policy and Administration: Review of Studies of the Effectiveness of the Research Tax Credit," that concludes that much uncertainty remains about the responsiveness of research spending to tax incentives. There was mixed evidence that the amount of research and development spending stimulated by the federal credit equals or exceeds the cost of the lost revenue.

GAO found that it was "unable to conclude from the recent studies that they provide adequate evidence that a dollar of research tax credit would stimulate a dollar of additional research spending."

GAO determined that the studies were limited by both the data and the methodologies used. The lack of adequate data was attributed largely to the use of publicly available data rather than tax return data. Tax return data are confidential and therefore were unavailable for the studies. The primary source of data was the COMPUSAT service, which provides financial information on publicly traded companies drawn from such sources as annual reports and SEC filings. In the opinion of the GAO authors, "publicly available data are not a suitable proxy for tax return data when measuring this incentive because the public sources use different definitions of taxable income and research spending."

The GAO report examined eight studies about the federal tax credit including studies reviewed earlier by the Office of Technology Assessment and KPMG Peat Marwick. (The Peat Marwick report, "Tax Incentives for R&D: What Do the Data Tell Us?" was commissioned by the Council on Research and Technology). GAO also reviewed academic articles and government studies relating to mechanisms for determining the social benefits of research spending.

Copies of the report (GAO/GGD-96-43) are available from GAO at 202/512-6000.