The “innovation agenda,” a promised commitment to keep America globally competitive, was discussed ad naseum on Capitol Hill a year ago as various politicians tried to prove they were committed to innovation and the future of the country. It was an important discussion. However, while politicians were talking about doing something, one of our most important policy drivers of innovation was left to expire.
The research and development tax credit was allowed to expire in December . . . again. When the credit was first enacted in 1981, the United States had one of the best research tax incentive programs in the world. The credit allowed a company to receive a tax credit for a portion of its allowable expenses for research or product development performed in the U.S., with more than 75 percent of the credit dollars going toward wages for highly skilled, highly paid workers.
Since then, our global competitors have surpassed the U.S.—which has dropped to 17 out of the 30 countries in the Organization for Economic Co-operation and Development (OECD) ranking of countries offering R&D tax credits. And with the credit expiring, we are now not even in the top 30 desirable global destinations for new R&D.
Obviously what is needed is real, fundamental tax reform—a rewriting of the tax code which, among other things, moves from an “old-economy” tax code to one that is designed for the current and future reality of our knowledge economy. However, such reform will not happen quickly enough to keep research and development on our shores, so something else is needed in the meantime.
Even now as many talk of the need for a “stimulus plan” to help the economy, no one mentions making a research and development tax credit permanent. Instead they consider poor choices (“putting money in people’s pockets”) that will be spent in a matter of weeks instead of encouraging the substantive, long-term investment that will enhance the global competitiveness of the U.S. and create a path for long-term growth.
Investment is what lays a solid foundation for the future—creation of jobs, and rising prosperity for all. Congress should go beyond simply talking about the importance of innovation, and should actually do something about it.