Rashkin goes on to argue that the credit is ineffective because it is
small, stating, “Congress imposed restrictions to reduce the cost of the
credit, but at the same time these limitations diminish its
effectiveness. They also reduce its cost.” This is illogical. If the
credit were more generous it would have a larger incentive effect. Don’t
blame the very nature of the credit for the fact that because it is so
weak that it doesn’t spur as much R&D as it should.
In fact, as ITIF has found
the U.S. ranks 27th in R&D tax incentive generosity, down from
first in the early 1990s. French and Indian companies, for example,
receive an R&D tax incentive five times more generous than in the
U.S. Yes, the R&D credit is not as effective as it could be, but
only because it’s rate is so low.
Rashkin also argues that the
U.S. government supports basic research, hence the R&D credit is
just a subsidy. Government support for basic research helps not just
U.S. companies but also global companies since knowledge easily crosses
borders. He also claims that companies can not only take the credit but
also write off R&D expenditures. In fact, the expensing of research costs
is reduced by the amount of the credit taken.
R&D credit would raise taxes on technology-based firms in the United
States, making them even less competitive in global markets. But this
is of no consequence to Rashkin, who seems to believe that the U.S. is
immune to foreign competition.
But as we argue in Innovation Economics: The Race for Global Advantage,
“since the late 1990s the United States has been losing out to other
nations with respect to competitiveness and innovation, the result of
too few resources going to wealth-creating investments like research and
In today’s intensively competitive world where the
U.S. has the highest statutory corporate tax rate and an extremely high
effective tax rate, raising taxes on companies competing in global
markets would make the U.S. even less competitive.
Rashkin doesn’t say what Congress should do with the savings from
R&D credit repeal. If he agreed that we should not raise taxes on
corporations in the U.S. he might propose using the savings to pay for
corporate tax rate reduction. In fact, this would enable the rate to be
reduced just one point to 34 percent. But it would also result in higher
effective taxes for companies that do R&D.
credit corrects a serious market failure and spurs U.S. companies to
invest in more R&D, creating more jobs, more competitive firms and a
stronger U.S. economy.
--Robert Atkinson is president of the Information Technology and Innovation Foundation
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