Dean Zerbe’s IndustryWeek article on the manufacturing R&D tax credit argues that many small and mid-sized manufacturers wrongly believe that their activities do not qualify for the credit. Too often, he states, they think this tax relief applies only to “companies with test tubes and lab coats.”
But manufacturers failing to take advantage of the existing tax credit only addresses part of a much larger issue of supporting manufacturing R&D, particularly in the smaller businesses that are one of the primary incubators of new technologies, processes and products for the country.
“Manufacturing is the key site - arguably the key site - of the U.S. innovation machine” that has produced personal GPS devices, the iPhone and 3D printing, Mark Muro of the Brookings Institution testified before the House Subcommittee on Research and Technology recently. He reiterated the huge role that manufacturing plays in R&D, accounting for 68% of domestic R&D spending.
But Muro said one of the “serious market problems” that the nation faces is that manufacturers “underinvest in R&D because they cannot reap the full value of technical advances in their profits.”
At the macro level, Muro stated, the U.S. could address the R&D issue by increasing public investment in R&D and technology development, and by “increasing the generosity of the R&D tax credit and reducing the effective rate on capital equipment investments.”
What can be done to get small and medium-size manufacturers with limited resources to increase their R&D activities? One idea being floated is to provide them with “innovation vouchers." The Advancing Innovative Manufacturing Act of 2013, sponsored by Rep. Eddie Johnson of Texas, calls for a pilot program that would award vouchers worth up to $20,000. Manufacturers could use them at research institutions to obtain R&D services such as compliance testing or engineering design.
“I like that it provides a small-dollar tool for spurring innovation in SMEs while providing a mechanism that will give universities and labs an incentive to be more responsive to industry needs and particular companies,” Muro commented, praising vouchers for their “simplicity and potential speed.”
Alab Taub, an engineering professor at the University of Michigan and former vice president of R&D at General Motors, also praised the voucher idea as a way to help smaller manufacturers “access leading edge technologies at universities and national laboratories.” Given the small size of the vouchers, Taub suggested it might be best to issue the vouchers through an existing program such as NIST’s Manufacturing Extension Partnership program rather than create a new program.
There is probably little chance that the voucher program will be enacted in its present form. But it’s welcome news that more voices in Washington are recognizing the critical role of manufacturing in innovation and research and development, and actively looking for ways to help entrepreneurial manufacturers find the early funding and technical expertise needed to turn their dreams into tomorrow’s market successes.