Industryweek 13633 Budget 1

Why You Should Care About the Federal Budget

March 20, 2014
Research budget includes$1.5 billion in funding for the National Nanotechnology Initiative, $5.1 billion for the Office of Science at DOE, $3.8 billion for the Networking and Information Technology Research and Development program Manufacturing funding includes $15 million for Advanced Manufacturing Technology Consortia , $13 million to Manufacturing Extension Partnership.  Technology funding allocates $29 million for the National Science Foundation’s contribution to the National Robotics Initiative and $22 million for NSF to contribute to the Materials Genome Initiative.

As a manufacturer the last thing in the world you probably read was the 218-page Fiscal Year 2015 Budget, released recently by the Obama administration. And given that Congress has its own ideas regarding the budget, you might have even less reason or interest.

But despite this, the budget does lay out a number of important proposals that, if enacted in all or in part, would have major implications for manufacturers in America.

On the positive side of the ledger is the call for a slate of programs designed to boost U.S. advanced manufacturing and industrial competitiveness—such as the proposal for $1 billion to create a National Network for Manufacturing Innovation (NNMI) comprised of 45 public-private-university led institutes that are poised to play a key role in revitalizing U.S. manufacturing.

Congress is now considering whether to adopt legislation to formally enact the NNMI program, and hearing from manufacturing constituents will be important in helping them understand why the initiative is needed to improve American manufacturing competitiveness.

The President’s budget also calls for $1.5 billion in funding for the National Nanotechnology Initiative (NNI), $5.1 billion for the Office of Science at the Department of Energy (DOE), and $3.8 billion for the Networking and Information Technology Research and Development (NITRD) program, which all play an important role in keeping the United States at the leading-edge of advanced research, much of it used by manufacturers.

It also calls for long-awaited, though relatively modest, funding increases for the Advanced Manufacturing Technology Consortia (AMTech), slated to receive an additional $15 million, and the Manufacturing Extension Partnership (MEP), slated to receive an additional $13 million. The MEP in particular has long “punched above its weight” in generating economic return from every federal dollar invested.

The budget further allocates $29 million for the National Science Foundation’s (NSF’s) contribution to the National Robotics Initiative and $22 million for NSF to contribute to the Materials Genome Initiative. In total, the $135.4 billion allocated for federal R&D activities in the President’s FY 2015 budget will support many programs generating significant return to the U.S. economy, its long-term innovation potential, and its manufacturers.

Tax Changes in the Budget

The President’s budget also calls for some positive changes to the tax code, including a proposal to make the R&E tax credit permanent and an increase in the rate of the Alternative Simplified Credit (ASC) from 14% to 17%, a desperately needed change as the United States has fallen to 27th in the world in R&D tax credit generosity.

But given the significant challenges facing the U.S. economy in the areas of productivity, innovation and competiveness, the 2015 Budget request does not go far enough. For example, in 2008 then-President-elect Barack Obama promised to put agencies including the NSF, the National Institute of Standards and Technology (NIST), and DOE’s Office of Science on a budget doubling path by 2018. But, the proposed 2015 funding for these agencies falls 25% to 30% short of the investment levels needed to remain on that doubling path.

More disconcertingly the budget puts the United States on a trajectory toward significant overall budget cuts in investments over the next decade. In fact, by 2024, NSF’s budget is slated to decline by 5% in real terms, the Department of Transportation’s by 6%, DOE’s by 8%, the Department of Education’s by 12%, and the Department of Commerce’s by 13%.

Yet Departments with largely consumption-based budgets, such as Health and Human Services, Agriculture, and Veteran’s Affairs, don’t get hit with any cuts.

This reflects a deeper problem regarding the budget’s emphasis on consumption over investment, which will inhibit innovation and increase economic stagnation moving forward.

For example, by 2024 discretionary expenditures—i.e., investments in the core building blocks of innovation such as research, infrastructure, and skills—will fall by 22%, while non-discretionary spending—i.e., mandatory expenditures for entitlement programs, debt service, etc.—will rise by 30%.

Moreover, the President’s 2015 budget allocates $252 billion for debt service—interest payment on the national debt—46% more than the $135.4 billion it allocates for federal investment in R&D.

The budget also penalizes U.S. corporations that must compete in global markets. Despite a pledge to reduce the corporate tax rate to 28% as part of his campaign, the President’s 2015 budget proposes an increase in corporate taxes of 6% by 2024, including $276 billion in new taxes on multinational corporations.

The budget would also end deferral of foreign-sourced income, a completely inferior proposal to finally making the switch from a worldwide to a territorial tax system. Also, consistent with the Democratic philosophy of small business good, large business bad, small businesses would get a number of tax breaks, including on expensing investment, while larger, more productive enterprises would not.

In conclusion, the President’s FY 2015 budget does direct funding toward a number of important initiatives in R&D, while also spurring the commercialization of innovations, but it does not arrest the long-term trend of continued underinvestment in the core building blocks of U.S. competitiveness.

As it stands today, the United States already invests more than $60 billion less in R&D as a share of GDP than it did in 1983. We need to be significantly increasing investments in R&D, not holding them flat at a rate that barely accounts for inflation. We need to be cutting taxes on business, especially those competing globally, not raising them.

We are still waiting for a true competiveness budget from either political party: a budget that would significantly shrink entitlements and expand investment; a budget that would increase taxes on individuals while cutting it on businesses that invest and compete globally. Sadly it appears that we are long way away from seeing this necessary goal become reality.

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