The Government’s Role in Facilitating Research & Development in the US

In the US the government, through the decades, has always played an active role in facilitating Research & Development, both in the private and the public sectors. This is only natural, considering the government’s priority in furthering economic growth. And economic growth and R&D go hand in hand, as innovation and changes in technology are integral to any country’s growth process.

As such, the government has come up with certain policies that directly encourage R&D activities. Government support for R&D is such that it has created agencies which provide grants, such as the National Science Foundation, and it has also developed various tax incentives such as the Research & Development tax credit which various firms can avail of.

The support of the government has proven effective for furthering R&D. In the early part of the 20th century, for instance, government support enabled the emergence of new technologies related to agriculture, health care, information technology, and chemicals. One particular case in point is the development of the lithium-ion battery, which was brought about with the help of materials research which was sponsored by the federal government.

In recent years, it can be said that the total R&D spending by the government has remained stable, making up approximately 2.5% of the GDP, or the gross domestic product. However, there are two main pointers related to this which may need further measures from the government. One is that the government’s R&D spending has gone down compared to private sector spending, and another is that the share of the government’s R&D spending on basic research has also declined. These issues need to be addressed, because the basic or fundamental research is the basis for most innovations. Therefore, certain economists have recommended that government support for basic R&D be increased in order to improve economic growth.

The government is therefore encouraged to create more positive policy instruments, especially when it comes to tax incentives. The government was already made aware of this more than two years ago, when in a speech by Ben Bernanke, he stated, “The challenge to policymakers is to encourage experimentation and a greater diversity of approaches while simultaneously ensuring that an effective peer-review process is in place to guide funding toward high quality science.”

The setting of clear-cut policies for R&D tax incentives, however, may be well under way. Recently, the IRS issued a series of proposals that seek to be more beneficial to firms engaged in the development of new products. These proposals eliminate any gray areas associated with R&D incentives, therefore encouraging firms to move forward with their research and experimentation activities with more stable and solid backing from the government.

If your firm is engaged in R&D and would like to know more about how you can qualify for government tax incentives, we at Swanson Reed can help you. Our company has been involved in R&D for more than 30 years, and we have assisted various firms with all their R&D tax incentive needs and requirements.

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