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Benefits of R&D Tax Credit Reported

February 27, 1998

The R&D Credit Coalition recently released a report that concludes the federal R&D tax credit would pay for itself by boosting productivity and economic growth. According to the report, making the R&D tax credit permanent would stimulate an additional $41 billion in R&D activity by U.S. companies between 1998 and 2010.

The coalition sponsored a study prepared by Coopers & Lybrand's Tax Policy Economics Group. The study examined both the cost of the tax credit to the Treasury and impact of the provision on the economy.

The R&D Credit Coalition is comprised of approximately 1,000 companies and trade associations and supports efforts to make the tax credit a permanent part of the tax code. Currently, the R&D tax credit is considered temporary and is scheduled to expire June 30, unless Congress votes to extend it.

Other benefits cited by the report include:

Higher productivity stimulated by the R&D credit would cause the economy to produce nearly $58 billion more of goods and services during the 1998-2010 time period.

As a result of productivity gains and the expansion of opportunities, personal income would increase by $61 billion over the 1998-2010 period. The report calculates the after-tax benefit of this increase would be equivalent to a $5 billion tax cut over 5 years and a $25 billion tax cut over 10 years.

A 1996 survey of state R&D tax incentives conducted by the State Science and Technology Institute indicated that the impact and effectiveness of state incentives were unclear. The survey found that 35 states offered some type of incentive for R&D activity. Many of those states modeled their programs after the federal tax provision and some states tied their tax credit formula to the federal credit and are dependent upon federal action.

The SSTI study noted that although most states do offer some type of R&D tax incentive, the limited amount of data that is collected and available limits any analysis of the effectiveness of state incentives.

The Coopers and Lybrand study, Economic Benefits of the R&D Tax Credit, is available by contacting Mark Weinberger, counsel to the R&D Credit Coalition, at 202/293-7474. The SSTI survey of state R&D tax incentives is available by calling the Institute at 614/421-SSTI (7784).