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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.