During all of my years with the National Association of Manufacturers (NAM) and later with the Manufacturing Institute, I was continually baffled and frustrated by Congress's blasé treatment of the research and development tax credit. Almost every year, Congress would allow the credit to go down to the wire -- sometimes actually let it expire -- before reauthorizing it. All of the businesses that devoted ample resources to R&D, which is to say our best, most forward looking companies, were left in the dark wondering how their substantial investments of time and resources into new concepts would be treated at tax time.
I have heard it said that in Washington it isn't one damn thing after another, it's the same damn thing over and over, and the R&D tax credit is a prime example. As Congress continues its endless, infantile struggle over the budget, the R&D tax credit is getting left aside and will likely expire again -- for the ninth time since 1981. When I ran the NAM, we had one full time person in our tax department who focused almost all of her time on the R&D tax credit.
This running in place is sheer insanity. We are engaged in an intense economic competition with other nations that generally enjoy significant advantages over us, mainly in terms of cheaper labor costs, less restrictive environmental and safety rules and generous government subsidies. The one area in which we dominate, and which is the crucial key to our continuing success, is our leadership in innovation.
U.S. business, and especially manufacturing, is the seedbed of that innovation, accounting for the lion's share of patents every year, more than any other sector. Most of our innovations are things the public doesn't see -- usually breakthroughs in manufacturing technology and processes that foster greater productivity - but manufacturing remains the goose that lays the golden eggs. Mark Doms, Chief Economist of the U.S. Department of Commerce, said manufacturing accounts for 70 % of our R&D, and 90 percent of patents.
It is beyond my comprehension that we somehow year in and year out elect people to Congress who simply do not understand the central importance of R&D and innovation to our ability to compete. They offer pretty words about the importance of free enterprise, but cannot connect the dots between that sentiment and the decisions they make about public policy.
No decision they make is more important than how much to invest in R&D and, perhaps even just as important, where to make that investment. Other nations have figured out how vital R&D is and are offering generous tax incentives to businesses that will invest in R&D on their shores. Our own R&D tax credit is relatively modest, enabling companies to write off a portion of their R&D investment, and Congress cannot even bestir itself to make that simple incentive a permanent fixture of our tax code. As Pogo said, we have met the enemy and he is us.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.. December 2013