- The Washington Times - Wednesday, September 20, 2006

True or false: Since the beginning of 2006, the cost of performing research and development in the U.S. has increased for nearly 16,000 companies.

Unfortunately, the answer is: true. At the end of last year, the single most effective federal policy to promote private, job-generating research in the United States — the Research and Development (R&D;) tax credit — expired. The R&D; credit is a proven and essential incentive for U.S. companies to increase their research activities here, and the evidence is overwhelming it has worked.

One month before the R&D; credit expired last year, both houses of Congress passed legislation that would not only extend the credit, but also enhance it so more U.S. companies and workers could benefit. That was nine months ago.

Amazingly, despite clear bipartisan support, Congress has squandered at least two opportunities to pass a final bill, exposing some businesses to increased costs for R&D; while denying other firms the opportunity to expand U.S.-based R&D.;

As representatives of the world’s most innovative companies, we could not be more disappointed, especially given the clear recognition in Washington of the growing innovation crisis in America. With great fanfare, members of Congress from both parties unveiled “competitiveness” agendas to demonstrate their prowess as protectors and promoters of the U.S. innovation economy. There is near universal agreement that the R&D; tax credit should be stronger. Even the president, in his State of the Union address last January, called for permanently extending the R&D; tax credit to “encourage bolder private-sector initiatives in technology.”

Clearly, a permanent R&D; credit would be a major boost for path-breaking private research. The credit was created as a temporary measure in 1981 and has been extended 11 times since.

The temporary nature of the credit and the risk of a gap in coverage — all too real today as we face at least eight months without the credit — reduce the attractiveness of U.S.-based research. R&D; can be enormously risky and rewarding, but there is no guarantee an innovative firm will recoup all its costs or realize all its benefits. In fact, economists have shown the societal return on private R&D; investments are higher than to the individual firms performing R&D.; This “spillover” effect means that, absent incentives like the R&D; credit, we are not likely to see optimum levels of private R&D.; A more stable R&D; credit is needed for private enterprises to plan and engage in riskier, long-term research projects.

The R&D; tax credit has been anything but stable. This is the second time in three years Congress has failed to extend the credit in a timely manner. Companies already report higher costs and taxes because of the loss of the R&D; credit. Until Congress seamlessly extends the R&D; tax credit, U.S.-based innovation will be more expensive, potentially depressing research budgets.

In this seemingly pro-innovation environment, it also is troubling Congress has let bipartisan legislation that would strengthen the R&D; credit stall for nine months. The current credit system hasn’t been changed in more than a decade. During that time, business models have changed, making the R&D; credit less beneficial, if not totally ineffective, for some companies.

Meanwhile, other countries — such as Canada, Ireland, India and France — have stepped forward with generous tax-based incentives to lure R&D; into their borders. These countries have seen the high-skilled, job-creating success stories from California to Virginia, and aggressively invest in education and economic development. With roughly 70 percent of R&D; tax credit dollars going toward the salaries of engineers and scientists, it’s about investing in high-paying jobs that can lead to creation of more jobs, increased productivity and economic growth.

Congress knows the R&D; credit needs to be strengthened and extended. In May, Congress had the opportunity to pass a final version of the bill, but opted not to do so. Just a few short weeks ago, partisan politics delayed final action yet again. This lost time amounts to a lost opportunity to bolster U.S. R&D; and most important, U.S. competitiveness. How can Congress claim to support innovation when it delays action on agreed-upon solutions, denying our economy the benefits of home-grown research? This continued delay simply opens the door for foreign governments to capture it for themselves.

As legislators campaign for re-election, voters should ask themselves is what their representatives and senators are doing to make our economy stronger, more competitive and more innovative in an increasingly competitive global economy.

Hopefully, Congress will respond not with another agenda outline, and more delays, but with a checklist of completed actions, starting with a strengthened, seamless, and stable R&D; tax credit.

John Engler is president of the National Association of Manufacturers and former governor of Michigan. Lezlee Westine is president and chief executive officer of TechNet and former senior official in the George W. Bush administration.

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