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The value of research and development

Wednesday, November 10, 2010

Throughout our nation's history innovators and entrepreneurs have played an integral role in creating American jobs, increasing productivity, and moving our economy forward. They have done so by pursuing new ideas and technologies. As a member of the House Science and Technology Committee, I have seen just how valuable research and development can be to our nation, and I'm committed to helping the private sector realize its full potential in exploring new frontiers.

In 1981 -- as a way to help pull our economy out of the Carter recession -- Congress enacted a tax credit designed to spur critical U.S.-based innovation and economic growth. This research and development tax credit has incentivized companies, large and small, to perform technological research by allowing greater deductions for the costs of researchers, wages, and supplies needed to make job-creating innovations, as long as all the work is performed in the United States.

Thirty years later, our economy is again struggling to right itself and the research and development tax credit once again can be a valuable arrow in our quiver.

It has fostered private sector investment by American companies of all sizes, helping to bring new, improved products and services to market. All manner of industries -- from agriculture-based sectors such as food and wood products to the more traditional software and pharmaceutical sectors -- have benefited. More importantly, it has helped entrepreneurs encourage American innovation and ingenuity. The research and development tax credits can significantly boost cash flow, especially for emerging and startup companies which lack the financial infrastructure of large companies.

Research and development involves experimentation which does not always result in a successful product. The incentive provided by the tax credit helps mitigate some of the risk and encourage companies to innovate.

Unfortunately, availability of this tax credit has been far from certain. Since its inception nearly 30 years ago, the tax credit has expired on 14 occasions, and has been extended 13 times, often retroactively. Most recently, the credit expired on December 31, 2009. Since then companies have been coping with uncertainty -- a situation which stifles private sector innovation and job growth.

Much like the uncertainty and anxiety surrounding the looming tax hikes slated to take effect on January 1, 2011, has forced our nation's small businesses into a holding pattern; so too has the constant lack of clarity and commitment to the R&D tax credit had a negative effect on America's job creators. A long-term, permanent bipartisan extension of the credit would enhance its incentive value because the private sector could rely on it for their multiyear research and development projects.

In order to compete in the ever changing global marketplace, America must be competitive. Every day we are losing ground to other nations, and we must find a way to reverse this trend.

The R&D tax credit creates high-wage, American jobs and encourages investment in research and development which contributes to the revitalization of the American economy.

After nearly a year since the tax credit expired, we should be on the cutting edge instead of in the waiting room. Every day the R&D credit remains expired, the future of U.S. jobs, innovation, and economic growth is in jeopardy.

Ideas become reality when America's innovators are able to tap into the entrepreneurial spirit which has strengthened our economy for generations.

In just a few days, Congress is slated to reconvene for what is referred to as a "lame duck" session. With these few days remaining in the second session of the 111th Congress, I am hopeful we will take up a bipartisan extension of the research and development tax credit to strengthen our economy and empower America's job creators.

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Representative Smith, I have several questions regarding the Research and Development Tax Credits you reference in your article, and how they are applied.

There are now over 250,000 toxic waste sites across our country -- so many in fact that the EPA has estimated it will take over 30 years of remediation at the current rate. The costs of this remediation are often transferred to the tax payers to take care of, instead of the responsible parties. This practice mainly by Industry concerns has resulted in a large loss of tax revenue that could have been applied elsewhere. Do you think that Industry should be held accountable for their toxic waste site remediation prior to offering them Research and Development Tax Credits? Would you be in favor of offering them the same amount of tax credits for toxic waste remediation?

Addressing our toxic waste problem now would be a win-win for all of our countries citizens. They are located in every state of the union and many remediation efforts could begin at once. This would immediately create jobs which our citizens desperately need and would help to clean up the environment at the same time.

Thanks for lending an ear!!

-- Posted by Geezer on Thu, Nov 11, 2010, at 4:22 PM

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U.S. Rep. Adrian Smith
Washington Report