Innovation-focused tax reform for U.S. global competitiveness

Small businesses are facing significant hurdles to raise the kind of early-stage capital required to fund innovation. Innovative research and development (R&D) projects are inherently handicapped by substantial start-up costs and a lengthy experimentation period. For small businesses working to sustain the R&D needed to make key breakthroughs, the ability to secure capital is the only way to keep progress moving.

The United States, like all great nations, has always relied on innovators to develop medicines, advance technologies, and bolster our economy. However, the United States currently ranks 5th in the Global Innovation Index.

American companies are increasingly contending with foreign competitors whose governments recognize the pivotal role that policy can play in cultivating innovative businesses.  As a result, foreign companies continue to grow their market share in fields like medicine, energy, and tech manufacturing. Innovation-based growth in the U.S. is continually falling further behind countries that exercise smarter long-term thinking.

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So what can Congress do to help our nation’s innovative small businesses thrive and regain our footing as a leader in innovation?

As policymakers consider tax reform, they should consider and include ways for highly innovative, research-intensive businesses to support their research and spur private investment.

The majority of these small businesses, many of which are pre-revenue, rely on private capital to fund their groundbreaking research.  In an increasingly difficult fundraising environment, we need a U.S. tax code that recognizes innovation and prioritizes the development of new cutting-edge technologies. The tax code should promote research-intensive and advanced manufacturing businesses as they continue to create quality American jobs, stimulate long-term economic growth, and strengthen our global competitiveness.

Companies facing these hurdles to raising capital aspire to become profitable and self-sustaining, but first need to get through the front end of a costly, multi-year research and development timeline.

The only way to bridge the gap is through reforms that encourage investors to think beyond short-term gains, promoting patient capital that can fuel leading innovations. Greater access to capital will lead to more breakthrough ideas and discoveries and ultimately more U.S. jobs. 

As tax reform takes shape, it is imperative to modernize the corporate tax code, enabling America to maintain its leadership in key 21st century industries in the face of challenges from foreign competitors. If we do not create a fertile environment for small businesses and set the stage for their success here in the U.S., we risk losing the next generation of American advances and, with it, the opportunity for needed job growth in key R&D sectors.

If the U.S. is to remain competitive in the global economy, we need to make sure there are policies in place that support small R&D-intensive businesses as they continue to create jobs and develop new and innovative products in our country.

Davis represented Kentucky's 4th congressional district from 2005-2012. He is the co-founder of Republic Consulting LLC and serves as a strategic advisor to the Biotechnology Industry Organization.