Our country has now been without a critical incentive for homegrown innovation for nearly four months. That is four months without an incentive for an inventor to take his emerging company to the next level. That is four months that technology firms have looked to other countries as options to invest their research and development dollars. That’s right- the United States has been without a Research and Development Tax Credit for more than a quarter of the year.
There has been lots of talk of the R&D tax credit but nothing has happened. President Obama has twice proposed strengthening and making permanent the research and development tax credit. Congress talks about spurring innovation and creating jobs. We are thrilled to hear all of this but it’s going to take action from both the Administration and Congress to make that happen.
The credit most recently expired in December and while Congress debates how and when to temporarily extend this vital incentive, for the 15th time, other countries are building their tech industries at our expense. As the National Science Board recently reported, the United States has lost one quarter of its high-tech manufacturing jobs in the last decade while China and other Asian countries continue to gain ground. Decisions about where to manufacture and perform R&D are not limited to issues of tax policy, but tax policy is certainly a critical part of that calculation and we keep playing catch with a vital component of that policy.
We don’t understand why would there even be a question about strengthening the R&D tax credit when, Ernst & Young tells us, that will create 30,000 research-oriented jobs in the short-term and a staggering 300,000 jobs in the long-term?
While we do want to see a permanent and strengthened R&D credit, there is a more immediate concern.
Not renewing the R&D tax credit would be a fatal mistake. The R&D tax credit is truly a jobs credit that has a long track record of creating real jobs, with bright futures, right here at home. And jobs are what we need.
Research and development is what takes a genius idea and turns it into a tangible product. R&D creates new industries and products, new solutions to our toughest challenges along with jobs.
On average, U.S. firms invest an additional $94 in research and development for every $6 they are allowed to keep through the R&D tax credit and nearly all of R&D investments are spent directly on employment. Talk about a smart investment that more than pays for itself.
We are the home of innovation and invention, including inventing the R&D tax credit. We wrote the playbook on how to encourage innovation and now other countries are using it to beat us.
We are nowhere near the top of the list, currently ranked 24th in the world — just ahead of Greece, in the incentives to lure companies — and employment — to our shores.
If we are going to encourage innovation, and all the economic benefits that come with it, Congress needs to provide companies with a multi-year extension of the tax credit so that companies know what they are dealing with when making decisions to expand and innovate. Bringing a new innovation to market is not a one-year project. Companies need to be able to plan for a least five years and they must be able to count on the R&D tax credit.
But the real solution to moving us back to the top is not to have the R&D tax credit simply renewed. Congress needs to strengthen the credit and make it permanent. We’ve been renewing the same temporary credit for 30 years – looks like it works.
There is a lot of talk about supporting innovation and creating an economy that is built for the future. As we’ve said in the past, doing that is going to be a joint venture between government and the private sector.
The tech sector is willing to step up. But the policies need to be in place to support us and we need them to be in place now, beginning with the R&D tax credit.
Getting this country back on track is going to take smart policy that balances fiscal responsibility with good investments that grow jobs and ensures the U.S. position as the global leader in innovation. Giving U.S. tech companies the certainty of the R&D tax credit would be a good start.
Here’s the plan: First, Congress needs to seamlessly renew and enhance the R&D tax credit now, not during the lame duck session. Second, we all need to get together and pass a permanent, strengthened R&D tax credit.
There are already good bills in Congress, let’s act on them. It’s smart policy.
Shawn Osborne is president and chief executive of TechAmerica.