Study: R&D Tax Credit Creates Jobs, Boosts GDP

The existing credit is estimated to increase annual private-research spending by $10 billion in the short-term and by $22 billion in the long-term.

A new study shows that the federal R&D tax credit has been a boon to the U.S. economy.

The study, commissioned by the R&D Credit Coalition and conducted by Ernst & Young, concludes that the tax credit has increased research spending, jobs and wages in the United States.

The positive impact of the R&D tax credit would be even bigger if Congress were to strengthen the credit and make it permanent, the coalition asserts.

Among the findings of the study:

  • The existing credit is estimated to increase annual private-research spending by $10 billion in the short-term and by $22 billion in the long-term (beyond the first several years), substantially higher than the credit's roughly $6 billion to $8 billion annual revenue cost.
  • Strengthening the credit by increasing the simplified credit from 14% to 20% is estimated to increase annual private-research spending by an additional $5 billion in the short-term and an additional $11 billion in the long-term.
  • The overall policy -- the existing credit plus strengthening the alternative simplified credit -- is estimated to increase annual private-research spending by $15 billion in the short-term and $33 billion in the long-term.
  • Research-orientated employment in the United States would be 130,000 higher in the short-term and 300,000 higher in the long-term as a result of combining the existing credit and the strengthening of the alternative simplified credit.
"The research and development credit encourages businesses to make long-term investments in U.S.-based R&D that will create U.S jobs, boost the economy and continue to spur innovation," said Ronald Dickel, chairman of the coalition. "We encourage Congress to make the tax credit a more effective incentive for companies to locate their R&D facilities and jobs in the U.S."
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