New Report Finds U.S. Tax Incentives For Research And Development Now 17th Most Generous Among OECD Nations
WASHINGTON, D.C. – The Information Technology and Innovation Foundation (ITIF) today released a report examining the effectiveness of the United States Research and Experimentation (R&D) tax credit.
The R&D tax credit can play an important role in ensuring that the United States remains an attractive location for global companies to conduct research. In a new report, The Research and Experimentation Tax Credit: A Critical Policy Tool for Boosting Research and Enhancing U.S. Economic Competitiveness, ITIF President Robert Atkinson reviews the scholarly research on tax incentives for R&D and finds widespread consensus that the credit is an effective tool for stimulating additional research, producing at minimum an additional dollar of private sector research investment in the United States for every dollar of foregone tax revenue.
Atkinson stated, “In a flat world, with other countries intensely competing to attract U.S. corporate research facilities and jobs, extending and expanding the R&D tax credit has become more important than ever if the U.S. innovation economy is to continue to prosper and grow.”
However, the generosity of the U.S. credit has declined over the years as Congress has put in place a myriad of restrictions on it. In contrast, other nations’ tax treatment of R&D has gotten more generous.
- While the U.S. had the distinction of providing the most generous tax treatment of R&D among OECD nations (Organization for Economic Cooperation and Development) in the early 1990s, by 2004 the United States had dropped to 17th.
- The tax treatment of R&D expenditures for small firms in Canada is more than 41/2 times more generous than in the United States and more than twice as generous for all firms in Australia, Japan, Mexico, Singapore, Spain, and the UK.
- Many nations have boosted their tax support for R&D in order to be more attractive to multinational R&D investment. Moreover, they market their tax incentives directly to U.S. companies to convince them to boost their investments in research in their countries.
- Between 1998 and 2003 investment in R&D by U.S. majority-owned affiliates increased twice as fast overseas as it did at home (52 percent vs. 26 percent).