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USA: Be Depressed June 2, 2008

Posted by gordonwatts in politics, science.

I like the USA. I like living here in the South of France for a year, but my home is back in the USA. That is why it is so depressing to read a talk like this (ppt, pdf). That is a talk by Breese Quinn (Prof. at U. Miss) summarizing “National Academies Convocation on Rising Above the Gathering Storm. Two Years Later: Accelerating Progress Toward a Brighter Economic Future.” This was a follow up to the original Gathering Storm report which documented how advances in Science and Technology helped the USA gain the upper economic hand and how we are now loosing those advantages – in many cases through our own lack of attention.

Breese starts off with a great slide with the following on it:

  • Largest IPO in history
  • New research University with 10 billion endowment (point out it took MIT 142 years to get there)
  • 200,000 students to study abroad most on gov’t scholarships
  • Gov’t investment in non-defense R&D set to increase by 25% over next few years
  • Multi-year initiative to make country global nano-tech hub
  • High level commission conducting follow up to the original Gathering Storm report with the objective of job creation.

Of course, none of these happened in the USA. In order, China, Saudi Arabia, China, UK, India, and Australia.

His page 5 is particularly nasty. I had no idea that the R&D federal tax break had been allowed to expire. What was the white house and congress thinking? Is there really a second side to that story? Another one good for a chuckle was that US companies spend 3x more on litigation then on research (what is it in other countries?).

I also liked one of the panel summaries: Lots has happened in other countries (300K downloads of the Gathering Storm report outside the USA), but here we are fat-dumb-and-happy and fighting election cycles with sound bites.

So. How do we fix it? Lobbying congress seems only marginally effective (if even that). Clearly we have to keep it up, however, if we aren’t to loose ground. Why haven’t business’ screamed bloody murder about the R&D tax cut being removed? Big companies like Exxon, Microsoft, Google, etc., have huge research budgets, don’t they?

I realize I’m an “insider”, and of course I think everyone should think the way I do. None-the-less – it still baffles me that this sort of thing is allowed to continue. Read the talk. It is worth it, and it will take about 10 minutes to scan through it.


1. AGuy - June 2, 2008

Why haven’t business’ screamed bloody murder about the R&D tax cut being removed? Big companies like Exxon, Microsoft, Google, etc., have huge research budgets, don’t they?

Yes, along with international subsidiaries where R&D can be done cheaper even before taxes…

2. agm - June 4, 2008

First, which R&D tax credit has expired? I worked for a tax analysis firm in early 2007, and when I left, a new one was just coming into effect in addition to the others we were learning. The oldest and most commonly used was excessively arcane (even for tax law and the associated regulation) that really and truly needed to die. Any tax credit that potentially requires 10-20 years of receipts, bank statements, lab books, time sheets, other assorted records, etc is stupidly implemented.

Second, you’re an academic, and just like I did when I started training, you cannot imagine how badly you are mangling the definition of R&D under the code, Treasury regs, and applicable jurisprudence. You have no idea what qualifies as R&D. Not even if you have a law degree do you actually understand what counts without training. We’re talking anything from that which most people think of as R&D to improving shipyard layouts to designing infrastructure for online porn vendors. R&D as defined by the code takes the traditional definition of R&D to be an extremely small subset of what can be allowed as long as it meets a 5-part test, the parts of which I’ve forgotten in the interim.

3. agm - June 4, 2008

Also, one of the requirements is that you INCREASE R&D expenditures year over year for any year you claim the tax credit, not that you have R&D expenditures in any given year. This has been in every version of the credit since the original was passed in the 1950s. This answers your question about bloody murder, given the onerous paperwork requirements and the near certainty of being audited..

4. Gordon Watts - June 4, 2008

Agm — thanks for your more informed input. I had no idea it required you to “increase” R&D funding. While I can totally understand why you want to encourage that, I’m puzzeled that that would be condition of getting anything back. Eventually R&D will reach a size that you don’t want to increase, and you will now cut so that you can increase the next year… Doesn’t make sense.

I’m not against the other definitions of R&D you mention. For companies almost all R&D has to be applied – only the largest can afford to do pure research. So, even if it is just having a person sit down and develop a new method to do something old (i.e. improve the port website infrastructure by learning some new tricks) I’m not against that as a tax break. The point is that people become smarter about what they are doing. Hopefully that ends up making the company more $$ as well.

Now, finally, you are right about “which”. I’m no tax expert. It probably is the old one that most people refer to. Is the new one as powerful as the old one? I.E. is the tax break of similar size? I do like the idea that less paperwork is required!

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