R&D tax support in U.S. is one-third what China offers its companies

showing components board
China offers nearly three times R&D support when compared to what U.S. federal and state governments offer companies. Two economists want to double federal R&D tax credits, among other measures.(Getty Images)

Federal and state tax support for R&D in the U.S. lags behind 23 nations and is only about a third of what China offers companies in tax incentives, according to two economists writing for technology think tank ITIF in Washington.

Today’s tax subsidies for R&D are 9.5% of all R&D spending in the U.S. economy.  “A fiscally responsible target would be to increase the overall subsidy rate to at least 15.5%,” said John Lester, a former economist for the Canadian government.  “That would put America close to par among comparable countries. More importantly…it would provide a solid boost to real incomes because of the way R&D drives innovation, productivity and competitiveness.”

In a 45-page report released Tuesday by the Information Technology and Innovation Foundation, Lester and co-author Jacek Warda write that the U.S. ranks 24th out of 34 countries in the Organization for Economic Cooperation and Development plus the four BRIC nations of Brazil, Russia, India and China.  They note that a tax cut bill passed and signed into law in 2017 will repeal a company’s ability to expense their R&D costs in the first year, replacing it with a five-year amortization provision, and causing the U.S. ranking to drop to 32d out of 34 nations. (Warda is president of JPW Innovation Associates and an economist.)

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The authors want to raise the R&D support level to 15.5% by doubling the federal R&D tax credit rates and eliminating the 2017 repeal contained in the Tax Cuts and Job Creation Act, among other measures.

In a statement, ITIF President Robert Atkinson endorsed improvements to the tax system for R&D and urged Congress to act quickly to ensure incentives to U.S. companies to stay competitive in global markets.

When asked to comment on the ITIF report, U.S. Sen. Mark Warner, D-Virginia, vice chair of the select committee on intelligence, issued a statement that he has previously favored enhancements to federal support for R&D in wireless networking, semiconductors and other technologies. “We’ve seen the impact of decades-long retreat from federal support for research and development, most dramatically in the decline in federal support for basic research,” he said in the statement emailed to Fierce Electronics on Tuesday.  

Warner and U.S. Sen. John Cornyn, R-Texas, introduced a bill in June to increase federal incentives to stimulate advanced chip manufacturing and enable cutting edge R&D.   The CHIPS for America Act would focus heavily on promoting U.S. development of chips partly to prevent the Chinese Community Party from dominating the semi supply chain. It includes a 40% refundable investment tax credit for semi equipment and facility expenditures through 2024.  However, it also creates new R&D streams to impact semi leadership valued at $11 billion.   The measure has also been introduced in the House as HR 7178.

Hill prognosticators give the measure little chance of being taken up before the next Congress convenes in 2021 following the general election in November.

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