ITIF Says: Federal Research Tax Credit Should Be Expanded

The rate of R&D investment by U.S. majority-owned affiliates performed outside of the U.S. increased twice as much as R&D performed within the U.S. from 1998 to 2003, as more countries around the world increased their R&D tax credits relative to those offered by the U.S. In a recent paper by the Information Technology and Innovation Foundation (ITIF), The Research and Experimentation Tax Credit: A Critical Policy Tool for Boosting Research and Enhancing U.S. Economic Competitiveness, Dr. Robert Atkinson makes the case for why the Research and Experimentation Tax Credit should be extended and expanded by the U.S. Congress.

 

When the Research and Experimentation Tax Credit was created in 1981, it was the most generous credit offered by any nation in the OECD. Over the years, additional countries offered more and more financial incentives to attract R&D activities. As a result, in 2004 the U.S. dropped to the 17th most generous OECD nation to offer R&D tax credits.

 

Atkinson cites a variety of recent studies that illustrate, at a minimum, the credit produces at least one dollar of research for every tax dollar forgone. This additional research stimulated by the tax credit leads to faster economic growth. Besides stimulating more R&D, the tax credit may also be responsible for attracting and retaining research investments.

 

The Federal Research and Experimentation Tax Credit is a 20 percent credit that applies only to increases in R&D spending. Other countries provide not just higher percentage rates on increased R&D spending, but additional flat credits for all research conducted. Other entities with taxing abilities may also provide additional credits. In Canada, for example, individual provinces provide credits on top of the federal credits. Most U.S. states also provide their own tax incentives to encourage research locally.

 

The paper can be accessed at: http://www.innovationpolicy.org/pdf/R-D_Tax_Credit.pdf



Links to this paper and more than 4,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at: http://www.tbedresourcecenter.org/