Senator Hillary Clinton on Wednesday unveiled a plan to bolster the economy by providing bigger tax breaks to companies that increase their research and development efforts in the United States.
The New York senator proposes to increase the corporate tax credit rate for companies that increase their spending on their research and development efforts to 30 percent of their R&D budget.
The previous federal R&D tax credit rate in the United States was 20 percent. That rate expired in December 2007, and lobbyists for technology and manufacturing companies are asking lawmakers to renew the scheme.
Stumping in Pittsburgh on the campaign trail, Clinton said that the plan would help to build "jobs of the future."
Among other things, the plan also calls on the federal government to provide annual matching grants of up to $500 million to state and local governments to create research centers, and for a brand new tax credit of 40 percent for basic research. The credit could include collaborative research between universities and corporations.
"I'm very pleased to see that senator Clinton is moving in this direction," said Rob Atkinson, president of the left-leaning Information Technology & Innovation Foundation, a think tank in DC that authored a report with similar ideas as those proposed on Wednesday by the Clinton campaign. "It's the boldest proposal for R&D tax credits that I'm aware of right now."
The issue of R&D tax credits is a pet cause among technology and manufacturing company chiefs, who make annual pilgrimages to Congress to plead with lawmakers to make the credit permanent.
Microsoft Chairman Bill Gates just made the trip early this March when he provided testimony on keeping the United States competitive in the global economy.
Microsoft currently spends $7 billion on research and development in the United States.
Both Democratic presidential rival Barack Obama and presumptive Republican presidential nominee John McCain have proposed to make the R&D tax credit permanent. Clinton is the only candidate who's proposed to expand the credit.
Atkinson said that the United States lead the world with the most generous R&D tax credit scheme under president Bill Clinton's administration, but that other countries, including China and India, have since implemented more generous schemes.
That, along with cheaper labor costs, has resulted in US companies expanding their R&D efforts outside of the United States: R&D spending by North American companies has grown twice as fast outside the US than spending by companies of all nations within the United States between 1998 and 2003, he said.
"Senator Clinton's proposal addresses the challenge by acknowledging that you have to make the US competitive for knowledge-based innovation work, and R&D is an important piece of that," said Atkinson.
Not all economists would agree that R&D tax credits are the answer to stimulating job growth in the high-tech sector, but Atkinson argued that that philosophy is misguided.
"There's a huge difference between computer chips and potato chips, and if you don't understand that, then you don't understand what drives economics in the 21st century," he said.
Photo: AP/Charles Dharapak