R&D Tax Credits Assists in Creating Jobs

A recent study in 2015 revealed that the federal R&D tax credit could assist in booming the United States economy. The study, created by the National Association of Manufactures (NAM), concludes that tax credits can increase research spending, jobs, and wages in the United States.

The report specifically focuses on the positive impact the R&D tax credit could have if the Congress were to make the credit both permanent and stronger. The study, commissioned by the NAM and conducted by economists at the University of Tennessee and the University of Kansas, focuses on the impact of five pro-growth policy changes: a maximum corporate tax rate of 25 percent; a globally competitive international tax system; full expensing for capital equipment; enhanced and permanent research and development incentives; and parallel changes for non-corporate pass-through businesses.

Shake Hands2The study finds that by implementing these changes, a pro-growth tax plan would add between 492,000 and 522,000 jobs per year and more than 6.5 million new jobs over 10 years. Indeed, R&D has been linked to creating new jobs for the economy in the past and a permanent R&D tax credit could certainly reinforce this fact. Vivarelli (2012) writes that process innovation results in a consequent fall in prices, thus extra profits and/or wages may be then accumulated by innovative entrepreneurs and their employees. Additional profits may be invested and so new jobs are hence created. R&D in the terms of product innovation can also imply the birth of entirely new economic branches, whereby additional jobs can be created. The labour-intensive impact of product innovation has been long observed and underlined by classical economists since the 1960’s (Say, 1964).

As this article reveals, an R&D tax refor has the potential to have a significant effect on the United States economy and new job creation. However, if Congress does not make the tax credit permanent this year, there is still empirical evidence that reveals the benefits of conducting R&D. If you would like to learn more, you may like to read of our previous article on ‘Why Claim the Research and Development Tax Credit‘ or you can contact us for more information.

 

References:
Vivarelli, Marco, Innovation, Employment and Skills in Advanced and Developing Countries: A Survey of the Literature. IZA Discussion Paper No. 6291. Available at SSRN: http://ssrn.com/abstract=1999319
Say, J.B. (1964) “A Treatise on Political Economy or the Production, Distribution and Consumption of Wealth,” New York, M. Kelley, first edn 1803.