Taxes

Creating a Collaborative R&D Tax Credit

June 9, 2011
| Reports
Growing sectors of the economy increasingly rely on collaborative research to remain innovative and competitive. Even so, firms’ investment in collaborate research ventures has stagnated in the past decade, contributing to the United States overall competitiveness crisis. In contrast, a growing number of competing nations offer additional tax incentives for collaborative R&D. Yet, the R&D tax credit– the principle way the United States entices the private sector to invest in more R&D– falls short of effectively incentivizing research collaborations. Congress should act quickly and enhance the R&D tax credit to strengthen the incentive for firms to collaborate as well as make the credit more competitive with other countries tax incentives.

Restoring America’s leadership in innovation-based competitiveness is one of our greatest challenges. President Obama called it “this generation’s Sputnik moment.” But to do so is going to require significant changes to the U.S. innovation system. One way of doing so is reforming how we incentivize the private sector to invest more in the building blocks of innovation, specifically collaborative R&D. Growing sectors of the economy increasingly rely on collaborative research (e.g. research performed between a business and a university, federal lab, or consortium). Businesses are increasingly turning to universities, federal labs, and other external sources for research. For instance, the number of top ranked innovative commercial products borne from in-house private sector R&D declined from 47 percent in 1975 to 13 percent in 2006 and nearly all of the remaining 87 percent of new, innovative U.S. technologies in 2006 were developed by collaborations between businesses and federal labs, federal agencies, universities, and other businesses.

In response, competing countries are increasingly offering additional tax incentives to spur collaborative R&D. For example, Hungary reduces a company’s taxable income by up to 400 percent of the amount invested in collaborating with a university or research institution. Japan and Italy offer flat tax credits for collaborating with a university of research institution of up to 14 percent and 40 percent respectively. And in France firms can receive a 60 percent flat credit on R&D investments at universities and federal labs.

Yet, the R&D tax credit – the principle way government entices the private sector to invest in more R&D – falls short of effectively incentivizing research collaborations. To make the United States more competitive, Congress should make the following changes to the R&D tax credit:

  1. Expand the definition of basic research. Congress should eliminate language in the tax code that restricts the definition of basic research to projects “not having a specific commercial objective.”
  2. Double the rate for energy research consortia. In order to spur the expansion of more energy research consortia, Congress should boost the flat energy research consortia tax credit from 20 percent to 40 percent.
  3. Create a Collaborative R&D Tax Credit. If Congress is serious about making the United States the premier destination for innovation, it should make all collaborations between a business and a university, federal lab, or any research consortia eligible for a 40 percent flat tax credit.

Testimony on Digital Goods and Services Tax Fairness Act

May 23, 2011
| Testimony and Filings

Rob Atkinson testifies on the Digital Goods and Services Tax Fairness Act of 2011 before Subcommittee on Courts and Administrative Law of the U.S. House of Representatives. He urges Congress to create a national framework to ensure fair, consistent and non-discriminatory taxation of digital goods and services.

Testimony on Digital Goods and Services Tax Fairness Act

May 23, 2011
Video of the hearing on Digital Goods and Services Tax Fairness Act.

Rob Atkinson testifies on the Digital Goods and Services Tax Fairness Act of 2011 before Subcommittee on Courts and Administrative Law of the U.S. House of Representatives.

Financing Innovation with a Carbon Tax

April 5, 2011
| Blogs & Op-eds

As President Obama continues the drum beat for new energy strategies to wean us off dependence on foreign oil and spur us onto developing cleaner alternatives, ITIF has weighed in on the energy/climate debate with a several recent reports that Administration policy makers and lawmakers should consider. The reports take on the myth that the price of carbon is the essential factor in driving innovation, catalogue the groundbreaking energy innovation work at the Department of Defense, and explore new ways of getting the innovation we need. In this piece, cross posted at Democracy – A Journal of Ideas, Rob Atkinson pulls together the information in these reports and argues for a carbon tax that would recycle revenue back into the pro-growth and pro-innovation activities.

UnCommon Sense about Corporate Taxes

April 4, 2011
| Blogs & Op-eds

Recent reports of GE’s artful dodge of U.S. income tax liability raised a furor about tax loopholes for fat cats and calls for a flat tax! But Rob Atkinson explains in a blog that the bigger story is that we need a rational debate on how to design tax policies to spur innovation, global competitiveness and growth. He cautions those on the left to seek progressive tax policies but to whacking at U.S. companies that are up against fierce global competition and advises those on the right and in the center that taxing barber shops and semiconductors at the same simple rate is not going to spur the growth and competitiveness we need.

An Innovation Carbon Price: Spurring Clean Energy Innovation While Advancing U.S. Competitiveness

March 30, 2011
| Reports

The United States faces two key energy challenges—improving national security by reducing dependence on foreign oil and mitigating the impacts of climate change by reducing carbon emissions. Closely linked is another challenge—as well as an opportunity—boosting international economic competitiveness by discovering and widely commercializing clean energy technologies. Until now, the predominant approach to these challenges was to based solely on raising the cost of carbon, either with a tax or through cap and trade. But this approach has come under strong resistance in part because raising the price of energy hurts U.S. industrial competitiveness. ITIF proposes a unique, alternative approach to meet all three goals simultaneously.

The way to do it is through a revenue-neutral innovation carbon price. ITIF proposes a fifteen-year economy-wide carbon tax on upstream, combustible, non-feedstock fuel sources of $15 per ton. Roughly 83 percent of tax revenues would be recycled back into the economy as growth and innovation inducing business tax incentives. Businesses that invest in the building blocks of innovation and growth—R&D, workforce training, and capital equipment—would receive a much more generous tax incentive than they currently receive. The remaining 17% of revenue would fund a Clean Energy Innovation Trust Fund that would support clean energy innovation initiatives. We believe that with this proposal we can have our proverbial cake and eat it too: cut oil imports, reduce carbon emissions, boost U.S. competitiveness and economic growth, expand federal revenues from that growth, and spur the expansion of a domestic clean energy industry.

An Innovation Carbon Price: Spurring Clean Energy Innovation While Advancing U.S. Competitiveness

March 30, 2011
Video presentation of the ITIF report describing a unique approach to spurring clean energy innovation and boosting U.S. industrial competitiveness using a carbon tax.

The United States faces two key energy challenges—improving national security by reducing dependence on foreign oil and mitigating the impacts of climate change by reducing carbon emissions. Closely linked is another challenge—as well as an opportunity—boosting international economic competitiveness by discovering and widely commercializing clean energy technologies. Until now, the predominant approach to these challenges was to based solely on raising the cost of carbon, either with a tax or through cap and trade. Read more »

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