Science and R&D

In an economy powered by innovation and technology, more proactive R&D policies are key to success.

Between FY 2010 and the FY 2013 sequestration, federal R&D expenditures declined by 16.3 percent; this is the fastest decline over any three-year period since the end of the space race.

Federal investment in basic and applied scientific research is a key driver of long-term U.S. economic growth (and a fundamental contributor to the discovery of new technologies and medicines that significantly improve health care and quality of life). In fact, research shows that a 1 percent increase in R&D capital stock increases GDP by .13 percent. Other countries get this, which is why they have significantly increased their investments in government-funded R&D in recent years. Read more »

Both Guns and Butter? New Paper Shows Growth Benefits from Military Procurement

April 28, 2014
| Blogs & Op-eds

Government plays an important role in R&D investment through spending on the military, but some have questioned whether this spending has real benefits for innovation. A new paper shows that military spending, specially defense procurement from U.S. businesses, stimulates more R&D and more patents than sales to civilians. The military buildup in the 1980s spurred innovation and defense cuts in the 1990s slowed it down. Unfortunately, recent budget cuts are likely to hurt innovation even more.

Why The Tax Reform Act of 2014 Should Expand, Not Cut, The R&D Tax Credit

April 14, 2014
| Reports

R&D is a key driver of U.S. productivity growth, innovation and competitiveness. However, relative to societally optimal rates companies underinvest in R&D, which is why since 1954 companies have been able to deduct R&D costs immediately rather than depreciating them, and why since 1981 companies have been able to take a tax credit for R&D expenditures. Unfortunately, the Tax Reform Act of 2014 proposed by House Ways and Means Chairman David Camp (R-MI) would not only significantly reduce tax incentives to invest in R&D but would disqualify R&D expenditures toward software development from the credit.

These changes, if enacted, would reduce the tax incentives for performing R&D in the U.S. by approximately $20 billion per year, raising the effective tax rate of R&D-performing companies. It would also reduce R&D performed in the United States by at least $25 billion annually, which would in turn reduce productivity growth by an estimated 0.18 percent per year going forward. Finally, eliminating the credit for R&D on software, an activity that many industries not just software engage in, would change the allocation of R&D across types of research, negatively impacting innovation. 

The United States cannot afford to be indifferent to where R&D is performed. Given the fact that 26 nations already provide more generous tax treatment of research, these changes will lead to relatively less global R&D being performed domestically, with the negative effects on the economy and jobs to follow. To be sure, America needs sensible reforms that lower corporate tax rates, but these steps should be taken while maintaining, or even expanding, proven incentives to invest such as the R&D tax credit.

Understanding U.S. S&T Competitiveness: Rethinking NSF's S&E Indicators Report

April 7, 2014
| Reports

For 42 years the U.S. National Science Foundation has been producing its biennial "Science and Engineering Indicators" report, and since 1998 it has included a chapter “Industry, Technology and the Global Marketplace.” The NSF report is seen by many as an unbiased source for where the United States stands in technology-based competitiveness. The media reports the findings and many in the economic and technology policy communities look to the report to assess how United States global technology-based competitiveness. So when the report concludes that, “The strong competitive position of the U.S. economy overall is tied to continued U.S. global leadership in many KTI [knowledge- and technology-intensive] industries,” and “The US has the highest KTI share of GDP of any large economy,” it is not unreasonable for official Washington to take this as a good housekeeping seal of approval that all is well and to view any calls of alarm regarding the state of U.S. tech-based competitiveness as the “boy crying wolf.” 

But while the NSF report contains valuable information, its analysis of U.S. technology-based economic competitiveness is seriously flawed and misleading. There are a number of problems. First, the report relies on an overbroad definition of KTI industries, most of which are neither in global competition or technology-based. For example, the fact that the health care and financial services industries have grown much faster in the United States than in our competitor nations is seen by NSF as evidence of U.S. economic competitiveness, when in fact it is just the opposite. Second, the report conflates the absolute size of sectors with U.S. national competitiveness. Third, the report measures output using dollar denominated exchange rates which makes accurate international comparisons difficult. And fourth, the report fails to provide sufficient transparency for much of its key data, preventing outside analysts from knowing exactly what is included and excluded in the NSF analysis.When these first three limitations are controlled for the result is actually quite different than the official NSF findings. In fact, U.S. science and technology-based (S&T) competitiveness has declined significantly as other nations have put in place policies to make gains while the United States has not.

If the NSF is going to provide accurate and useful analysis of science and technology data related to U.S. competitiveness, it would be well served to significantly restructure the makeup and structure of the analysis in this key chapter to focus solely on science and technology-based, globally traded sectors. Doing so will provide policy makers with a more accurate assessment of the true competitive position of the U.S. S&T-based economy

To Stay Innovative, We Have to Reward Research

Tacoma News Tribune
Tax incentives can and should be used to incentive investment in R&D says Robert Atkinson.

MRIGlobal Cutting Expenses Because of Revenue Declines

Kansas City Star
Falling investment in research by the federal government is hampering U.S. global competitiveness.

"STEM Shortage" Debate Reveals Fundamental Disagreements, Some Common Ground

Science
In a discussion surrounding STEM education and labor policy, ITIF argued there is a shortage of STEM workers that is inhibiting the innovation economy.

ITIF Debate: Is There a STEM Worker Shortage?

March 12, 2014 - 1:00pm - 2:30pm
National Academies' Keck Building
500 Fifth St., N.W.
208
Washington
DC
20001

The issue of high skill immigration is receiving increased attention as Congress considers comprehensive immigration legislation. Underlying this issue is an ongoing debate surrounding the U.S. labor market for high-skill workers, including those in science, technology, engineering and math (STEM) fields. Read more »

The United States will allocate $252 billion for debt service, interest payment on the national debt, in 2015, as compared to the president's request for $135.4 billion in funding for federal R&D programs in 2015.

If these allocations hold, the United States will spend 46% more on debt service than it invests in R&D in 2015. This highlights the squeezing out of non-discretionary expenditures (i.e., investments in the core building blocks of innovation) by non-discretionary spending (i.e., mandatory expenditures such as for entitlements or debt service). Under the 2015 Budget Request, discretionary spending will decrease by 22% while non-discretionary spending rises 30% by 2024. Read more »

ITIF Debate: Is There is a STEM Worker Shortage?

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