Useful comment by Suzy Khimm about the source of innovation and Perry Rotella about how innovation happens in companies. Solitary genius is only part of the innovation ecosystem. That has always been true. It’s especially true now.
As anyone who has been to the lab at Menlo Park can attest, Thomas Edison’s intensity was imparted on a team, who often slept on cots in the lab along with their boss, when working toward what seemed like a breakthrough. In today’s world, how we do things is as much innovation as the products themselves. The U.S. tax code needs to better reflect that.
When Congress takes up corporate tax reform, lawmakers should consider a few ideas from ITIF. First, make clear that process R&D qualifies for the R&D tax credit. Currently, the way Treasury interprets the law can make it difficult for companies to take the credit for process innovation. In addition, it is easy for process innovation to spill into the market. If we make it easier and more economically worthwhile to try new ways of producing, the more firms will invest in ways to improve productivity, and the more competitive they will be. It might also make the U.S. a more attractive place to expand manufacturing operations.
Second, Congress should use the tax code to promote more collaboration between companies as well as non-corporate entities. The R&D credit is available for collaborative energy-related research but it’s time expand to any area of collaborative research and expand the rate from 20 to 40 percent. This would reflect market realities and address underinvestment we often see by individual companies, particularly in basic and exploratory research. Discoveries from collaborative research are often shared through scientific publications so firms are less able to capture the benefits of collaborative research. If we expand tax incentives to participate in research consortia, it could boost overall R&D expenditures and at individual firms. Other countries, including Canada, Denmark, Hungary, Japan, France, Norway, Spain and the United Kingdom, provide firms more generous tax incentives for collaborative R&D than the U.S. R&D is one place where the U.S. can afford to be generous. Rather, it cannot afford to not be generous.
So, let’s encourage the garage tinkerers and obsessive geniuses but let’s also lend a hand for group efforts.
Image credit: Wikimedia Commons contributor Andrew Balet.