When it comes to innovation and competitiveness, there is a lot to like in the President’s budget. The President deserves praise for at last pointing the country in a new direction but he must better prepare us for an arduous and uncertain journey on the road to global competitiveness and innovation.
To his credit, the President is standing up to those who would drop an engine to lighten the load of plane in flight. The investments he proposes to make in emerging technologies, energy innovation and education are essential to our economic future. The president rightly proposes increased funding for innovation—from increases at National Institutes for Health, to the Manufacturing Extension Partnership program at the National Institute for Standards and Technology, to the Patent and Trademark Office, to expanding renewable energy R&D.
At the same time, we need to remember how far we have fallen behind. Until the late 1980s the federal government provided generous support for scientific and technological research. This spurred private sector research, a strong technology sector and helped make us the most innovative country in the world. But growth in federal support over the last quarter century has been so anemic that if we wanted to restore federal support for research to its 1987 levels (as a share of GDP), we would have to invest an additional $60 billion annually! The President’s budget falls far short of that figure. For example, the President recommends increases in ARPA-E funding to $550 million. Unfortunately, this is still below the $1 billion funding ITIF believes this critical agency needs.
Similarly, his call for expanding exports and revitalizing manufacturing is laudable but its needs to be backed up with stronger actions. For example, he proposes making the R&D tax credit permanent and boosting it from 14% to 17%. However, that would move us up to 13th place in comparison of R&D credits competing nations offer their companies. If we are really serious about winning the race for global innovation advantage then the Administration should call for a credit of at least 20 percent. To get us back in the top five countries, the R&D credit should go up to 30%. On the trade front, in addition to pushing for passage of the free trade agreement with Korea, the President needs to take on innovation mercantilists around the world by giving trade enforcement agencies the resources they need.
To be sure, the President understands that we need an even more robust innovation and competitiveness strategy. Unfortunately, his hands are tied by a mindset that says the United States is number one and doesn’t have to worry about other countries’ innovation strategies and a budget situation that is dire at best. On these broader challenges, the President must continue to awaken the country that this is our last chance to address the realities of today’s global competition. He must also speak honestly about the need to rein in entitlements. That’s where the money is. Until then, he will have to fight for even incremental investment increases, no matter how much they make sense. Until then, President Obama will have pointed the old car in the right direction with half a tank of gas when we need a new car and full tank.