Investing in Innovation: The Need to Strengthen the R&D Tax Credit. Making Incremental R&D Tax Credit Permanent is Top Priority Despite Need to Reduce Federal Budget Deficit.
Abstract
Given the degree of competition firms face both domestically and abroad, continued innovation and its rapid commercialization are necessary for survival of the U.S. industrial sector. The United States historically has been very successful at invention, but for too long we have been much less successful at quickly incorporating the new technology in products and processes. This factor has been an important contributor to the loss of U.S. market share in many industries. In the words of President Reagan's science adviser, William Graham, Either we innovate or we'll be buying everything from abroad. Considering the economic stakes, it is imperative that public policy, including tax policy, encourage the formation and adoption of new technologies. The 1981 Economic Recovery Tax Act (ERTA) included a provision for an incremental tax credit of 25 percent for certain qualifying research and development expenditures which exceed a base level. This tax credit provision was only temporary and scheduled to expire by 1986. With the passage of the 1986 Tax Reform Act (TRA), the R&D tax credit was extended for an additional two years, through 1988, albeit at a lower marginal rate (20 percent), to allow time for further evaluation. Virtually all economists agree that without government incentives the private sector will not invest sufficiently in R&D since it is impossible for those conducting R&D to capture all of the benefits from successful R&D.
Document Details
- Document Type
- Technical Report
- Publication Date
- Nov 01, 1987
- Accession Number
- ADA193388