For some reason the "Reply" function is not appearing on your last reply.
The quote you cited is a description of the credit as currently designed. It is not what we think the credit actually does, or should do.
If you give me a concrete example of a development project, I'll try and explain why I think it merits (partial) public support.
Congratulations on your product development, but lets go over this one more time: Product development is not R&D. Got it? Product Development is not R&D! Product development cost is subtracted from your revenues for tax purposes already. Just like the child care tax deduction cannot be applied to the family dog, the R&D tax credit should not be applied to activities that are not R&D, and Product Development is not R&D!
Then it would seem that your analysis has a fundamental flaw since, "The goal of this corporate R&D tax credit is to encourage R&D investment by domestic and foreign firms alike by rewarding incremental, qualified research in the United States." How can you claim effectiveness of the credit if you don't differentiate research activities from development? This distinction seems fundamentally important as research activities are the ones that need government stimulation while development activities are generally stimulated by market forces.
My knowledge of the credit is limited, but I have a hard time understanding the argument for an additional subsidy for development activities without return compensation.
To me, your comment implies that innovation is a narrow activity limited to pursuing new ideas that aren't ready for the market. Most academics use a much broader definition of innovation that encompasses improvements to existing products and processes.
The position we took in the report is that the definition of activities qualifying for the credit should be made the same as those already qualifying for the deduction of research expenses. Those would include "All costs required for the development or improvement of a product".
As I’ve explained in other comments here, the category of “improvements” still fits the economic definition of a market failure that justifies the credit.
Then let me be the first company to officially announce a product that was produced as a result of the R&D tax credit. This credit allowed my small company to hire one more person to create our Online IP Screening Service and to make improvements to our core CodeSuite product. Why does everyone forget about the small businesses when discussing tax credits?
President, SAFE Corporation
G-Liden, the title of your report is ,"The Corporate R&D Tax Credit
and U.S. Innovation
and Competitiveness". As you've stated, the goal of the tax credit is to spur innovation and not to simply subsidize jobs. The official name of the credit per your report is the "Credit for Increasing Research
Activities". Please note that there is a significant difference in activities associated with Research than those associated with Development. To lump these activities together categorically removes the entire purpose of the credit all together, which is to spur innovation. It seems that you wish for the credit to continue as a product development subsidy rather than an innovation incentive.
It is out of context because the GAO is referring to the screwy base estimate required to calculate the credit. The econometric studies use very different approaches to generate their counterfactual spending estimates, so the GAO quote does not apply to them at all. Otherwise, the GAO would have referred to academics, not to policymakers.
As for the corporate decision making process, I thought we beat that to death about two comments ago.