R&D Tax Credit in USA to Bolster Innovation Lags Globally

Written by Corporate Tax Incentives. Updated Apr 3, 2019.

GlobalIn December 1971, President Richard Nixon signed a bill called the National Cancer Act (NCA), starting a crusade in the U.S., declaring “War on Cancer”. With breakthrough treatments and early detection advances that have increased survival rates by 20 years, the government’s investment set the stage for the U.S. to become the world leader in cancer research.1

Almost 50 years later, the meticulous research from the centers, which were founded by the NCA bill, is now fueling a renaissance in private sector cancer research. With the way paved for exciting developments in immunotherapy and gene replacement therapy, the U.S. private sector is leading the global charge to blockbuster new drugs and innovation.2

However, the next big leaps in oncology medicine come with significant upfront costs.3 To keep private companies innovating, the U.S. Government must not retreat from the “War on Cancer” and continue to nurture and maintain an environment friendly to innovation.

A Global Perspective on the R&D Tax Credit in the USA

When it comes to boosting research and development innovation and productivity, one of the most powerful weapons in the federal government’s arsenal is the research and development tax credit (R&D Tax Credit).

Unfortunately though, it appears that the federal government is waiving a white flag, at least when compared to many other industrialized countries’ R&D tax incentives.

In 2017, the U.S. passed the Tax Cut and Jobs Act. While the TCJA lowered the corporate tax rate to a much more competitive level and dramatically reduced the taxes U.S. companies pay on their foreign profits, the reform did not increase incentives for research and development.

Learn more about the Tax Cuts and Jobs Act and how it relates to claiming R&D tax credits

According to the Organization for Economic Cooperation and Development, the U.S. has now dropped to 25th in research incentives among industrialized countries that offer R&D incentives.4

And in a recent Ernst & Young report, of the 41 jurisdictions they surveyed, 14 forecast new or more generous research tax credits in 2018. Germany, the U.K., Australia, and China are just some of the countries sweetening the pot with new or more generous research tax credits, while the U.S. slides.5

Retreat Is Not an Option for US Research and Development Innovation

The United States needs to follow the international trend to remain a global powerhouse. One suggested course of action is to increase the R&D Alternative Simplified Credit (ASC) to at least 20% from its current rate of 14%, as was proposed in the Research & Experimentation Advances Competitiveness at Home (REACH) Act of 2016.6

Globally, industrialized nations recognize the importance of research and development in business and tax credits’ roll in nurturing innovation. The United States must also encourage private companies to increase their investment in the future by lowering the after-tax cost of research.

In 1971, many called the NCA a “moonshot” by a nation that was still actually sending men to the moon.7 The NCA is yet another example of the United States’ legacy for leading the world in innovation. This is a role we do not want to relinquish.

CTI Remains a Leader in Maximizing Tax Incentive Benefits

While the U.S. may be slipping relative to other nations, the R&D Tax Credit is very much still a lucrative benefit for American businesses. The R&D credit is one of the largest incentives available to businesses and can possibly save your company hundreds of thousands of dollars annually.

Partner with CTI’s elite tax professionals, allowing our team of attorneys, CPAs, engineers, and scientists to identify which activities are eligible for the credit and what expenses can be used to maximize tax savings for your manufacturing business.

 

What Can R&D Do For You?  Discover a practical approach to maximizing your federal research and  development tax credit. Download Guide

1, 3. War on Cancer Progress Depends on Market Innovation, Ross Marchand, Mar 23, 2019
2, 7. Nixon's War on Cancer: Why it mattered, Sabin Russell, Sep 21, 2016
4, 6. We're No. 25: Why the US Must Increase Its Tax Incentives for R&D, Joe Kennedy, Nov 14, 2018
5. R&D incentives continue to draw government favor: Reflections from EY’s The outlook for global tax policy in 2018, Ernst & Young

Topics: R&D Tax Credit

Corporate Tax Incentives

Written by Corporate Tax Incentives

CTI is a tax incentives specialty firm that secures greater tax credits for businesses with our proven project methodology and unparalleled personalized service. For almost 20 years, our elite tax professionals have proactively engaged clients to deliver unmatched value with transparency and efficiency thorough secure in-house software, comprehensive audit-ready deliverables, and 24x7 access to real-time dashboards. We are tax consultancy experts passionate about maximizing credits and incentives for powering the success of your business.