Right now, America is the world’s leading innovator — developing life-saving technologies, state-of-the-art computer systems and breakthrough manufacturing products — but we are losing ground to competitors around the globe. This is unacceptable, but we can turn this around by making the research and development tax credit a permanent part of the U.S. tax code.
U.S. companies continue to hold off on investing during this stagnant economy. They have little confidence in this disappointing economic recovery, the weakest since World War II, and no certainty that their long-term investments will pay off due to an ever-changing tax code. For the last few years, American companies have increasingly directed their R&D expansion overseas, benefitting foreign countries, such as China, and their workers. According to The Wall Street Journal, companies, such as 3M and General Electric, are rapidly expanding their overseas research, spending billions of dollars that could have stayed in the U.S.
In fact, our share of global research and development has fallen to 31 percent in 2014, from 39 percent in 1999. During that time, China’s share has increased fourfold, and experts expect China to surpass the United States by 2022. Other Asian countries and European Union nations together are also hot on our heels.
This is why I introduced the bipartisan American Research Competitiveness (ARC) Act along with Rep. John Larson (D-Conn.). Building off previous work by Ways and Means Committee Chairman Dave Camp (R-Mich.) and Rep. Sandy Levin (D-Mich.), both parties have long agreed that America’s manufacturing and innovation base needs to expand. And providing the R&D tax credit permanence will help spur growth as America competes to remain the largest economy through the 21st century.
The ARC Act strengthens and modernizes the tax credit by increasing the alternative simplified credit rate from 14 percent to 20 percent and making it easier for small, mid-size and large companies to benefit.
Permanence is vitally important. Many key R&D investments take five to seven years to bear fruit. Companies don’t plan their R&D projects a year at a time, so how can they confidently move forward with their research investments when they don’t know from year to year if the tax credit will continue to exist?
The ARC Act will not only encourage American companies to increase their current R&D spending, it will attract new R&D investments and create more American jobs.
Bottom line: Companies based in the U.S. are going to continue to expand their research and development investments.
The question is where in the world will they make those investments? Continuing the start-stop, temporary status quo of the broken tax code will send these investments and jobs overseas. Will lawmakers in Congress continue their partisan bickering and merely watch as high-tech innovation and manufacturing are siphoned away from the United States?
It’s time for both parties on Capitol Hill to put aside the politics and pass the American Research Competitiveness Act and give our companies the certainty they need to confidently invest within our own nation.
Modernizing and simplifying the R&D tax credit will ensure that the next wave of innovation and technology will happen here at home, spurring job creation for the millions of Americans still looking for work and kick-starting our economy back into high gear.
Brady has represented Texas’s 8th Congressional District since 1997. He is the chairman of the Joint Economic Committee and a member of the Ways and Means Committee.