Aggressive R&D Tax Credits by Other Countries Put the U.S. Near Bottom of the Pack

In 2008, the U.S. ranked 17th in R&D tax generosity out of the 21 OECD countries that offered some form of R&D tax credits to businesses, according to a recent brief put out by the Information Technology & Innovation Foundation (ITIF). In U.S. Continues to Tread Water in Global R&D Tax Incentives, authors Rob Atkinson and Scott Andes state even though the U.S. had the most generous R&D tax incentives in the world throughout the 1980s, its relative ranking has slid over the decades as other countries have strategically used tax policy as a tool to spur private sector R&D.

Their suggestion for improving the U.S. competitiveness regarding this topic: both expand and make permanent the existing R&D federal tax credit.

Taking the U.S. Alternative Simplified Credit (ASC) as an example, which provides a 14 percent credit on R&D expenditures exceeding 50 percent of base expenditures, the U.S. would need to increase the ASC to 20 percent to improve its position to 10th place among OECD countries. If the U.S. wanted to regain its prominence among OECD countries by being first in R&D tax generosity, the authors calculated the ASC should be increased to 47 percent.

Atkinson and Andes argue not only would this policy adjustment make R&D more advantageous for U.S. companies to engage in R&D at home, but it would make the U.S. more attractive to international R&D. They cite a review of academic studies that find for every tax dollar relinquished through R&D tax credits, between one and three dollars in private sector R&D investment is made.

The race for countries to incorporate R&D tax credits into their policy strategies has continued this year. The article reports Australia increased its credit in 2009 to refund 45 percent of all R&D expenditures, not just additional expenditures. Additionally, France has enacted a 50 percent credit for companies applying for their R&D tax credit for the first time, and now has the policy of a 60 percent tax credit on all R&D expenditures made in cooperation with a federal laboratory.

Changes to the federal R&D tax credit might have some impact on state revenues as most states offer their own R&D tax credits that are linked closely to the federal incentive.

U.S. Continues to Tread Water in Global R&D Tax Incentives in available at http://www.itif.org/index.php?id=275.

Hear Rob Atkinson at SSTI's Annual Conference, Oct. 22-23.
ITIF president, Rob Atkinson, is one of the brightest and most entertaining visionaries for the future of national and regional innovation policy. We are extremely fortunate to have Dr. Atkinson joining SSTI president and CEO, Dan Berglund, for the opening plenary session of SSTI's 13th Annual Conference in October. In TBED for the Next Decade: Charting the Future for America's Competitiveness, the two will lead an interactive conversation examining the realities of the impact of the economy's downturn, and the solutions for stronger states and regions to emerge by seizing the moment. Learn more about the upcoming SSTI national conference at http://www.ssticonference.org/.