Proceedings of a Seminar on R&D Tax Policy

March 8, 1990

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The last half of the 1980s was a great disappointment to Americans who see research and development (R&D) as vital to the nation’s economy. Real growth in R&D expenditures only averaged 1 .3 percent from 1985 to 1988. They are projected to be even slower from 1988 to 1990, with an 0.9 percent decrease in real growth during 1989, the first such decline in 14 years. This stagnant period contrasts sharply with the first half of the decade when R&D expenditures increased an average of 8 .2 percent in constant dollars. The U.S. currently spends substantially less than either West Germany or Japan on non-defense R&D.

What role has tax policy played in this nosedive? What provisions of our tax code provide corporations with positive incentives to invest in research and development? Which provisions of the code inhibit R&D expenditures? Everyone here in Washington seems to agree on the benefits to our economy of more R&D. But despite this unanimity, the U.S. R&D tax credit has been since its inception in 1981 a jumble of short-term extensions and technical changes to its calculation that has not provided substantial incentive for U .S. firms to increase R&D expenditures.

On March 22, 1990, the Tax Foundation held a seminar, “R&D Tax Policy: A Study in Conflict, Opportunity for Change” to examine this theme of conflict within the code and propose a variety of possible improvements.



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