R & D tax cut could expire

Scott Tong Dec 15, 2011

Jeremy Hobson: We are less than two days away from a possible government shutdown. That’s if Congress can’t get past partisan differences and pass a $1 trillion spending bill to keep agencies running. You’ve heard about the expiring payroll tax cut that’s caught up in all of this. But there’s another tax cut on the line, one for innovators. The kind of people who might be
working on the next Google or Facebook.

Marketplace’s Scott Tong reports.

Scott Tong: The research and development tax credit is renewed annually. So it seems every Christmas, tech firms watch the elves on Capitol Hill, hoping for a gift of one more subsidy year. But it can take a decade to get a great idea to market. Is this any way to run an innovation economy?

William Sahlman at Harvard Business School puts it this way: say you’re developing a new gas that costs a buck a gallon. You face lots of challenges: technology, customers, idea theft. And, thanks to D.C., financial unpredictability, too.

William Sahlman: Uncertainty is what I always call a corrosive hidden tax. It’s one thing I’m gonna take on uncertainty or risk that I can manage. But I’m going to be far less likely to take on additional risk I can’t manage. As we now know in Washington, I can’t predict anything.

Sahlman says a better, cheaper gas is good not just for the inventor, but society. So, he argues, the Feds should encourage innovation. Independent studies suggest tax breaks pay off: They stimulate research, and cut the cost of developing the next big thing by 6 or 7 percent.

In Washington, I’m Scott Tong for Marketplace.

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