Taxes and Budget

Tax incentives for research and development (R&D) in America are less generous than in comparable countries—and now prevent firms from expensing the full value of R&D investments in the first year. Enhancing R&D tax incentives would create high-paying jobs across the country.

Economists agree that because most of the benefits of R&D and its technological breakthroughs accrue to entities other than the investing firm (e.g., customers, competitors, etc.), the current level of R&D investment is well below what would be socially optimal.

As Yogi Berra once said, making predictions is hard, especially about the future. So, looking ahead to the New Year, ITIF can offer predictions with only 90 percent confidence. The other half is prescriptive.

The tax law allowing firms to fully expense their research and development (R&D) costs expired at the end of 2021, and full expensing of equipment costs will begin phasing out in 2023. This decreases firms’ incentive to invest in these key drivers of economic growth and competitiveness. Congress should restore and make permanent full expensing for these investments.

Between 1990 and 2020, the Organization for Economic Cooperation and Development (OECD) has become more reliant on corporate and social insurance taxes and less reliant on individual taxes for revenue.

In 2021, the United States ranked 20th among the 38 Organization for Economic Cooperation and Development (OECD) nations with respect to capital allowances, per data from the Tax Foundation.

Ensuring that the open, voluntary and industry-driven standards process prevails over China’s “standards mercantilism” will require action along a number of fronts, including providing financial support for companies to participate in the international standards process.

In the quest for “payfors” for the Build Back Better spending package, Senate Democrats have proposed a 15 percent minimum tax on corporations in the United States with at least $1 billion in annual “book value” profits. But as structured it is bad public policy—not only because it risks politicizing how companies book profits under FASB rules, but also because it will reduce the value of certain tax incentives companies have been given to advance key public-interest goals.

If policymakers want to continue supporting innovation and the public benefits that innovation brings, then tax rates should be set with the interests of both public revenue and scientific progress in mind.

Raising taxes on companies that compete in global markets, particularly in knowledge-intensive, high-value-added industries, is a recipe for a larger trade deficit, fewer good jobs, and a weaker national defense industrial base.