NCPA - National Center for Policy Analysis

Push to Make R&D Credit Permanent

December 16, 2010

As Congress considers a broad tax deal proposed by President Barack Obama and Republicans, high tech and manufacturing businesses are particularly favorable to a provision that would extend research and development (R&D) tax credits, says Gerald Helguero.

Currently, the United States is the world's leader in spending for R&D, according to government estimates.

  • While global R&D spending was $330 billion worldwide in 2009, the United States had 71 percent of all spending at $234 billion, according to a report by the National Science Foundation and the Census Bureau.
  • Of that, $49 billion was spent by foreign companies in the United States.

The temporary R&D Tax Credit expired last December, although it does not have to be reinstated until the end of 2010.  If renewed in the latest package of tax measures worked out between the president and Republicans, it would be the 14th extension for the credit since it originally became law in 1981.  It has lapsed several times during that period.

Global competition for R&D money is growing.  An index developed by economists Donlad McFetridge and Jacek Warda shows that while the United States had the world's most generous R&D tax credit when it was first enacted, today, 16 other nations have a more generous tax break, according to Pamela Villarreal of the National Center for Policy Analysis.

Villarreal notes that while the United States has only a 7 percent tax credit for each dollar spent, other countries, such as Spain, Mexico and Canada provide tax credits of 44 percent, 37 percent and 17 percent, respectively.

"In the long run, the tax credit increases gross domestic product by as much as $2.96 for each dollar of tax revenue lost, but a stop-and-go policy is less beneficial," she told R&D magazine.

Source: Gerald Helguero, "Push to Make R&D Credit Permanent," International Business Times, December 14, 2010.

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