Permanent R&D Tax Credit Offers Potential for Continuing U.S. Technology Leap-Ahead

Article excerpt

Currently there is a strong push on Capitol Hill to make the research and experimentation tax credit, which has been extended eight times since its introduction in 1981, a permanent feature of the U.S. industrial landscape.

This research and development incentive has had a profoundly positive impact on the economy, according to analysts, who say it has spurred U.S. competitiveness and, thus, has provided tangible benefit to all Americans.

Long Range Planning

Before examining its multiple attributes, it is appropriate to mention the decided advantage of making the R&D tax credit, as it is popularly known, an immutable feature of federal fiscal policy. Industry leaders contend by removing the uncertainty of periodic R&D tax credit extensions that they will be better able to engage in long range planning, which would tend to maximize the import of this critical technology incentive. This new state of affairs would prove to be a boon especially for the defense technology and industrial base that remains mired in a world of budgetary hurt.

Critical sectors within this base will be expected to produce a full array of systems that will keep the United States at the pinnacle of readiness not only in the coming decade but well into the 21 st century.

Analysts believe the tax credit via the productivity and economic growth that is generated will more than pay for itself. As a matter of fact, a Coopers & Lybrand study offers that Uncle Sam ultimately would gain $1.75 for every dollar the government spends on the credit.

The research paper says continuation of a vibrant research and development investment would contribute $13 billion a year to the U.S. economy's productivity capacity by the year 2010. Between now and then, a permanent extension would encourage industry to spend an estimated $41 billion on R&D.

Viewed another way, the authors of the study note, "Additional output capacity from gains in productivity produces a 31 percent annualized rate of return for R&D-more than twice the typical rate of return to investments in plant and equipment.

Rising Productivity

They also predict that rising productivity would stimulate nearly $60 billion in goods and services during the 12-year span that would include "$33 billion of additional domestic consumption, $3 billion of additional residential construction, $12 billion of additional business investment, and $10 billion of additional net exports."

Coopers & Lybrand asserts the resultant growth in high technology companies would increase skilled jobs and ultimately boost wages for all workers. …

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