It is no secret that the United States’ position as a world leader in research and development is slipping as the world gets flatter, evidenced by the growth of R&D popping up around the globe, attracted by more generous R&D tax incentives. With major U.S. trading partners offering refundable R&D credits or super tax deductions, the attraction for U.S.-based R&D to move offshore is proving to be strong. No surprise when the French minister of Higher Education and Research visited Washington, D.C., this month that she touted her government’s R&D tax incentive as the best one offered among EU countries. In the mid-1980s, the U.S. had the strongest R&D tax incentive among OECD countries. By 2009, the U.S. R&D tax credit ranked 17 out of 21 countries offering an R&D tax incentive. Today, the United States ranks dead last with an expired credit!
And prospects for renewing the U.S. R&D tax credit this year grow dimmer as Congress fails to act despite bipartisan, bicameral support and President Obama’s repeated championing of the credit. Manufacturers are the biggest users of this jobs credit, claiming nearly 70 percent of R&D credits. Why? Because R&D fuels innovations and technological advancements that translate into new products and increased productivity—two necessary components for growth in manufacturing.
With the manufacturing sector having lost two-plus million jobs in the recession that began in December 2007, a sure bet to keeping high skilled, high wage R&D jobs in the United States is to seamlessly renew the credit in the short term, and strengthen and make permanent the credit in the long term. More than 70 percent of R&D Credit dollars are attributable to wages, U.S. wages only, because the credit only applies to research performed in the United States.
With unemployment hovering around 10 percent, swift congressional action to renew the credit would be a formidable step in saving and in comes cases creating jobs, in addition to boosting the incentive value of the Credit because companies would be certain that the credit will be available for R&D done in the United States in 2010. I hope House Majority Leader Hoyer’s public comments of July 23, “My own personal view would be to make it retroactive again” become true. The credit has been extended temporarily 13 times since it was enacted in 1981, 10 times packaged with permanent tax increases and the remaining times with other tax increases. There was a permanent gap of no credit from mid-1995 to mid-1996. To have an anemic credit restored is better than to have no credit at all, if the United States is serious about competing in the global race for R&D investment dollars.