Research and development is the foundation of technological advance, the engine that helps deliver miracle drugs, timesaving devices and the cutting-edge technology that generates new jobs and economic progress.
If government has a role in R&D, it’s to make sure there is more of it—not through federal spending, but through incentives such as a tax credit that encourage more R&D.
Currently, the federal R&D tax credit, which has been on the books since 1981 and is available only for U.S.-based R&D, has expired. President Bush wants to renew the tax credit and make it permanent. However, his own party, which controls Congress, has passed legislation that would extend the credit for only 18 months. This is more than just a difference of opinion. There are real economic consequences, both for jobs and growth.
A study by Ernst & Young found that nearly 16,000 U.S. companies claim the R&D tax credit. More interesting, though, is the finding that small businesses—the real jobs factory in this country—benefit the most from the credit: More than 4,500 companies with assets of less than $1 million claimed the credit. Moreover, wages make up the largest share of company R&D expenses that are eligible for the credit. This means not just more jobs, but more better-paying jobs.
Both Democrats and Republicans support extending the credit. At least on this issue, President Bush has been a uniter rather than divider. Firms and workers should not be held hostage by a Congress that dallies, spending billions of dollars on pork barrel projects that have little long-term economic impact.
Economic growth and jobs are at stake, both now and down the road. Lawmakers need to give the president what he wants on this issue. If they don’t, they create large incentives for businesses to cut back on R&D or take it overseas.