The United States has not overhauled its tax code since 1986. Since then, increased global competition has led other countries and U.S. states to lower their corporate tax rates while also introducing or expanding incentives to encourage investment and production. As a result, the United States has fallen behind other nations, both in the level of its statutory corporate tax rate and in the incentives it gives to productive investment, including scientific and engineering research. In fact, the United States currently has the highest statutory corporate rate among OECD countries and now ranks just 25th in the generosity of its incentives for research.

This paper briefly describes the current R&D tax credit. It then reviews the scholarly evidence supporting its efficiency in boosting domestic research and economic productivity. Although the United States was the first country to introduce a research tax credit, this report shows that it has continued to fall behind many of its competitors that have enacted more generous research incentives in an attempt to expand and draw more innovation to their economies. The paper concludes with a firm call for Congress to include a significant increase in the credit’s generosity as part of any tax reform. Toward that end, Congress should increase the simplified version of the credit to 20 percent from its current value of 14 percent.