Federal

Congress should fund the Regional Innovation Program.

Regional innovation clusters (RICs) are geographic concentrations of firms and industries that do business with each other and have common needs for talent, technology, or infrastructure that they aren’t always able to meet on their own. Moreover, because the benefits of geographic clustering spill over beyond the boundaries of a firm, market forces produce less geographic clustering than society needs. Thus, there’s a strong role for public policy to play in supporting regional innovation clusters. Regional innovation programs have proven a highly successful form of economic development for communities across the United States. Programs such as the i6 Challenge and the Jobs and Innovation Accelerator Challenge have helped local, regional, and state entities leverage existing resources, spur regional collaboration, and support economic recovery and job creation in high-growth industries, but more needs to be done. The 2010 Reauthorization of the America COMPETES Act authorized the Department of Commerce “to establish a regional innovation program to encourage and support the development of regional innovation strategies,” but this was never funded. The 2013 Reauthorization of the COMPETES Act should include at least $100 million for the regional innovation strategies program.

Congress should fund a pilot program supporting experimental approaches to technology transfer and commercialization.

A number of organizations throughout the United States are experimenting with novel approaches to bolster technology transfer from universities (and national laboratories) to industry and to accelerate the commercialization of university-developed technologies. The 2013 Reauthorization of the America COMPETES Act should support these types of novel approaches by including $5 million to fund experimental programs exploring new approaches to university and federal laboratory technology transfer programs. The program should be managed by the Department of Commerce’s Office of Innovation and Entrepreneurship. Organizations would apply for the grants and winning proposals would be selected on criteria such as: 1) how innovative they are in demonstrating a new model; 2) recent documented success of their program; and 3) willingness to publicly disclose best practices learned from their programs.

Congress should expand foreign trade zones to include a value-added tax (VAT) incentive.

Congress should include a value-added tax (VAT) incentive for investing in foreign trade zones. At least 143 nations have VATs, which have the advantage of being border adjustable, meaning that exports are not taxed whereas imports are, thus improving U.S. competitive advantage. If Congress created a VAT in foreign trade zones, establishments in the foreign trade zones would be eligible to pay VAT taxes instead of corporate income taxes and these taxes would be waived on all foreign exports.

Create global knowledge investment zones (GKIZs) to attract foreign direct investment.

The federal government should identify a limited number of global knowledge investment zones as a key mechanism for attracting high-value-added foreign direct investment. Firms located in these zones would be eligible to receive a number of benefits, including: 1) The ability to write off (on federal taxes) all capital expenditures in the first year; 2) A collaborative R&D tax credit of 25 percent on all expenditures on research made at the associated universities in the GKIZ. For companies that are not yet profitable, tax benefits could be applied against payroll taxes; 3) Streamlined access to university technology, with university zone participants agreeing to implement leading-edge intellectual property and technology transfer practices, including “standardized” licensing agreements and policies to encourage faculty entrepreneurship, industry engagement, and technology commercialization; 4) Access to better-funded NSF I/UCRCs; and 5) Visa preferences by tapping into the unused portion of existing EB-5 visas.

Congress must take steps to retain and strengthen the domestic production deduction

The Section 199 deduction for domestic production increases the incentive to invest domestically. Eliminating this deduction would raise the effective tax rate on manufacturers and other exporting sectors, thereby at the margin leading to reduced exports, greater imports, fewer jobs in these sectors, and lower overall growth. Rather than eliminate it, Congress should expand it as President Obama has proposed for advanced manufacturing firms.

Congress should reduce uncertainty by making the R&D tax credit permanent.

R&D tax incentives in virtually all nations except the United States are permanent features of the tax code. Since its enactment in 1981, the R&D tax credit has been extended eleven times and expired three times. The uncertainty over the credit’s existence adds risk to the already risky research investments made by companies and reduces its effectiveness. One OECD study found that the less stable and more uncertain the credit is, the less likely it is to have a positive effect on stimulating R&D. One reason Congress has not made the credit permanent is because the expenditures must be scored for five years, raising the budgeted cost. While extending the credit each year does not lower its actual cost significantly, it does allow the costs to be passed on to next year’s budget.

Congress should direct NSF to establish stronger university entrepreneurship metrics and use them to provide stronger incentives for universities to commercialize research.

Congress should direct the National Science Foundation, working in partnership with National Institute of Standards and Technology, to develop a metric by which universities report entrepreneurship and commercialization information annually. The reports should include data on faculty new business starts, spin-offs of new companies from universities, license agreements and patenting, and industrial funding of research. Congress should further direct all major federal research funding agencies to factor these performance metrics into their decisions to award research funds to a university or university researcher. Applicants from universities that successfully promote entrepreneurial spin-offs/start-ups or that receive more in industry research funding would be more likely to have their principal investigator grants funded.

Congress should create an “Innovation Voucher” program operated by NIST.

Almost a dozen countries—including Austria, Canada, Belgium, Denmark, Germany, the Netherlands, Ireland, and Sweden—use innovation vouchers (ranging in value from $5,000 to $30,000) to spur R&D, new product development, and innovation activity in traded-sector SME firms by enabling them to “buy” expertise from universities, national laboratories, or public research institutes for assistance with preparatory studies, analysis of technology transfer, analysis of the innovation potential of a new technology, etc. The vouchers both spur innovation in SMEs and stimulate knowledge transfer from universities and research institutions to SMEs. In the United States, innovation vouchers could be introduced at either the federal or state level, but Congress should facilitate their introduction by authorizing $20 million to NIST to fund a pilot program operated by select states that agree to match the funding dollar for dollar. As a potential source of funds to keep this option revenue-neutral, one option would be to take 0.5 percent of the current allocation to national laboratories to fund the vouchers.

Congress should authorize the creation of a National Network for Manufacturing Innovation (NNMI) and allocate at least $500 million to support the initial deployment of at least 15 and as many as 25 Institutes of Manufacturing Innovation.

Unlike leading manufacturing nations such as Germany or even the United Kingdom, the United States lacks an integrated, well-funded national network of large-scale, industry-led manufacturing innovation centers that can accelerate technology deployment, operate demonstration facilities and test beds, support education and training, and perform applied research on new manufacturing processes. Accordingly, the United States should develop a National Network for Manufacturing Innovation (NNMI) that would establish at least 15 Institutes of Manufacturing Innovation (IMIs) that would bring together industry, universities, community colleges, federal agencies, and states to accelerate innovation by investing in industrially relevant manufacturing technologies with broad applications. The network would help bridge the gap between basic research and product development, provide shared assets to help companies (including SMEs) access cutting-edge capabilities and equipment, and create a compelling environment in which to educate and train students and workers in advanced manufacturing skills. Manufacturers would lead the development of IMI proposals, defining the scope and focus of the Institutes, and provide at least 50 percent of the resources for each IMI, with that contribution growing over time. But Congress should act initially to authorize the creation of the National Network for Manufacturing Innovation and allocate at least $500 million—which would be matched 1:1 by industry and state/regional governments—to establish a $1 billion fund to support deployment at least 15 and as many as 25 manufacturing institutes.