The Information Technology & Innovation Foundation issued a report this month arguing that U.S. tax incentives should be increased to bolster research and development investment. Key points made in the 46 page report include:
- Federal and state tax support accounts for 9.5 percent of R&D spending in the U.S. economy. This is quite low by international standards—ranking
- America 24th out of 34 comparable OECD and BRIC countries, considerably behind China.
- Starting in 2022, because of provisions in the Tax Cuts and Job Creation Act of 2017, the United States is on track to be one of the few countries not to allow expensing of current R&D costs.
- Congress should lift the overall R&D subsidy rate to at least 15.5 percent—the benefits would still far outweigh the costs—by eliminating the 2017 expensing repeal and slightly more than doubling the effective rates for federal R&D credits.
- Congress also should expand the favorable tax treatment of foreign-derived intangible income—which indirectly supports R&D by reducing taxes on income from exports of commercialized R&D products—to cover income from domestic sales, too.
- Achieving an overall R&D subsidy target of 15.5 percent still would only put America near the median level among comparable counties. But it would help improve our competitive advantage in innovation industries.
- More importantly, enhancing tax incentives for R&D would boost Americans’ incomes by bolstering innovation, productivity, and competitiveness.
