Congress should make clear that process R&D qualifies for the R&D tax credit. This will encourage more firms to invest in improving productivity, and will also make the U.S. a more attractive place to expand manufacturing operations.

While process R&D, done to improve the process of production in firms, is technically eligible under the definition of qualified R&D, in practice it can be difficult for companies to take the credit, in part because Treasury interprets the statute very narrowly. But there are spillovers from process R&D which means that without the credit firms will do less process R&D than is economically optimal for the nation.

Congress would spur greater workforce training if expenditures on employee training were added to qualified research expenditures under the R&D tax credit.

The competitiveness of industry depends in part on the skills of its workers. Given the rapid increase in education levels abroad, it is clear that the skills of American workers must be strengthened both pre-market—through better high school curri cula and higher college matriculation and completion rates—and through on-the-job training. Training and on-going education are critical drivers of ro bust productivity growth and rising worker incomes. And a key way workers get skills is through training provided on the job by employers. But U.S. companies invest much less in training today than they did a decade ago. Therefore, to spur greater workforce training while at the same time lowering the effective corporate tax rate, Congress should allow expenditures on employee training to be added to qualified research expenditures under the R&D tax credit.

Congress should institute a small "tax" on federal R&D budgets to support university, state and federal laboratory technology commercialization.

Allocating 0.15 percent of agency research budgets to commercialization programs would generate $110 million per year to fund technology commercialization and innovation efforts. Half the funds could go to universities and federal laboratories for a variety of initiatives, including mentoring programs for research entrepreneurs, student entrepreneurship clubs and entrepreneurship curricula, industry outreach programs, seed grants for researchers to develop commercialization programs, etc. The other half could go to match state technology-based economic development (TBED) programs. These programs, such as the Oklahoma Technology Commercialization Center, assist researchers, inventors, entrepreneurs, and companies in turning advanced technologies and high-tech startup companies into growing companies.

Create an Industry Research Alliance Challenge Grant program to match funding from consortia of businesses, businesses and universities, or businesses and national labs.

This program would resemble the current Technology Improvement Program (TIP) operated by NIST but would have an even greater focus on broad sectoral consortia and would allow large firms as well as small and mid-sized ones to participate. To be eligible for matching funding, firms would have to: form an industry-led research consortium of at least five firms; agree to develop a mid-term (three-to-ten year) technology roadmap that charts out generic science and technology needs that the firms share; and provide at least a dollar-for-dollar match of federal funds. This initiative would increase the share of federally funded university and laboratory research that is commercially relevant. In so doing it would better adjust the balance between curiosity-directed research and research more directly related to societal needs.

In order to reduce the Patent and Trademark Office’s backlog of pending patents, Congress should end patent fee diversion and gives the PTO regulatory authority to raise fees to meet budgetary needs.

To reduce the delays that currently plague the U.S. patent system, the PTO should be able to retain all patent fees and the PTO should have fee-setting authority to increase fees to meet budgetary needs. The current statute requiring USPTO to wait for a congressionally amended fee schedule is inflexible and does not allow USPTO to respond to increased costs.

To increase capital for startups, require that the federally supported Small Business Investment Companies (SBIC) program to invest at least 25 percent of its funds in early and small deals.

Since it was revised over a decade ago, SBIC has been an effective tool. However, if all the program does is provide lower cost capital to venture firms investing in late stage and large deals, it is not fulfilling its purpose of addressing market failure or limitation. Congress should require that SBIC devote some share of funds (perhaps not less than 25 percent) to smaller deals (perhaps less than $2 million).

Congress can tie states’ receipt of federal funding to maintenance of rainy-day funds of at least 10 percent.

Through their fiscal policies, states play an increasing role in U.S. macroeconomic stability. Yet most have underfunded rainy day accounts. As a result, when national economic downturns hit, states raise taxes and cut spending, exacerbating recessions and slowing recovery. The federal government can put policies in place to ensure that state and federal budget policies are more harmonized. One way to do this is to tie the states' receipt of federal funds to their willingness to maintain much larger rainy day funds.

Congress should appropriate $1 billion annually for a competitive matching grant fund to fund state-supported technology-based initiatives.

To boost U.S. international competitiveness and the number of good jobs, we need a more robust innovation policy. State governments can play a key role in this. In fact, all 50 states now have initiatives to promote technology-based economic development. However, because the benefits of innovation spill across state borders, states invest less in innovation-based economic development than is in the national interest.

Congress and the Administration should allocate $180 million per year for the creation and expansion of Math and Science High Schools.

More so than other high schools, math and science high schools produce benefits that local communities, and even states will not capture. Rather than be seen as solely the responsibility of local school districts, or even of states, they should be seen for what they are: a critical part of the nation’s scientific and technological infrastructure. Congress and the Administration should set a goal of approximately quadrupling enrollment at such high schools to around 250,000 students. This will require both the creation of a significant number of new high schools, and the expansion of others with room to grow. Moreover, these funds should go toward establishing MSHSs focused on underrepresented populations. States and/or local school districts would be required to match every dollar of federal support with two dollars of state and local funding. Industry funding would count toward the state and/or local school district match.

Congress should create a New Schools America fund to support states and cities to develop new kinds of schools.

The fund would help encourage state legislatures to create specialized schools that are autonomous from the management of traditional schools.
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