In a recent journal article, Rashkin provided the following example of how a revised tax credit should work: “Under this proposal, research on Apple’s first iPad would have easily qualified, but any succeeding models would not unless the improvements were very innovative in nature. Since the development of breakthrough products is usually costly and risky but at the same time provides the greatest benefit to the economy, the credit rate should be increased.”
Other incentives for product innovation and manufacturing investment should include lower tax rates for companies that develop and manufacture products in the US, Rashkin told Congress. “By providing this incentive to manufacturers and their suppliers, and by removing the [IP] tax haven advantage, we would reverse the foreign outsourcing trend and reinvigorate the US manufacturing industry,” Rashkin testified.
The R&D tax credit has been renewed several times since its inception in 1981. The technology industry has longed lobbied for a permanent extension. Sen. Max Baucus (D-Mt.), chairman of the Senate Finance Committee, along with ranking committee Republican, Sen. Orrin Hatch of Utah, have jointly proposed a permanent extension of the credit. The proposal also would increase the nominal tax credit from the current 14 percent of research expenses to 20 percent.
“Making this tax credit permanent will provide certainty, and it will help spur economic growth for generations to come,” Baucus said last fall.
Observers doubt whether any tax proposal could make it through the GOP-controlled House of Representatives in a presidential election year. “A bill that does not include making the Bush tax cuts permanent or a thousand other tax provisions” has no chance of approval in the House, one observer said.
As for the Obama administration, one manufacturing advocate notes, “It's not an uphill fight to get the [White House] economists to agree that the country needs to have manufacturing.”
I'm not an anarchist, but I do consider myself a constitutionalist. Our current situation has been developing for decades and it looks like we have reached a point where there is no longer a concept of freedom to "pursue happiness" but a "regulation of everything". Once all rights and permissions flow from an all-regulating bureaucracy, it can attempt to control the system by increasing regulations here, and providing tax incentives there. We do not have the models and knowledge of the number of variables necessary to calculate our way out of our current situation. Agile Design has taught us the Waterfall method of development doesn't guarantee success but often guarantees cost overruns and fault-ridden work product that arrives too late to be of use. Our Founders praised the Agile Design method of continuous improvement and rampant experimentation by individual stakeholders. I for one hope we can evolve our system in that direction.
This is an excellent example of what has failed to happen -- an effective chain from government funding research, to product development and manufacturing. Everyone seems to agree that we need to rebuild manufacturing but it's an area where we need effective legislation that doesn't produce unintended consequences. Let's hope we can get it done.
I agree that tax incentives have to be a viable tool for enticing manufacturers to keep key R&D and manufacturing jobs on our shores. And the argument seems strong that increasing the credit to a more substantial number (should it ever pass in the Congress and the Senate--an entirely different story) could have some merit. It wasn't clear to me, however, how the curent R&D tax credit encourages companies to park R&D in overseas tax havens? If the credit is tied to U.S. manufacturing, no matter what the rate, how would it foster this overseas investment? Any one care to wade in?
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