The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&Dnies (some from Silicon Valley) have lobbied federal legislators to update and extendthe existing R&D tax credit.The present federal tax credit expired in December 2005. Congress is expected to announcean extension soon which will include a major increase in tax credits calculatedby a new formula more favorable to growing companies. The new formula is calculatedon R&D spending over the last three years and the tax credit can reach up to 20 percent(Puzzanghera 2005). President Bush also recently proposed to work with the Congressto make a new R&D tax credit permanent (ACI 2006).The state of California offers all companies that conduct R&D in the state a tax credit.The tax credit is 24 percent for basic research and 12 percent for other types of researchon the state corporate income tax (FTB 2006).8.5.3 Policy RecommendationsAccording to a report by the Government Accountability Office (GAO), proposedpolicy responses on the federal level in the U.S. can be divided into four categories: 1)improving U.S. global competitiveness; 2) addressing effects on the U.S. workforce; 3)addressing security concerns; and 4) reducing the extent of offshoring (GAO 2005).Examples of proposals to improve U.S. competitiveness include increasing governmentsupport for R&D and improving education and training of U.S. workers (GAO 2005).There have also been some proposals to limit the effects of offshoring on U.S. workers.On a federal level, some of the measures have the aim to limit the effects of displacedworkers from production being offshored.For example, the Trade Adjustment Assistance (TAA) program, established in 1974,provides financial assistance to individuals who lose their manufacturing jobs due toforeign imports or shifts in production to foreign countries. Services available for qualifiedworkers include weekly income assistance, training, and job search and relocationservices. Analysts have suggested that the U.S. Congress expand the coverage of theTAA to include service workers (Brainard & Litan 2004).Another proposal for addressing effects on the U.S. workforce, that has received attention,is to introduce wage insurance. This wage insurance, combined with subsidies forhealth insurance, would be available to workers who lose their jobs through “no fault oftheir own.” The insurance would take effect only after the laid-off person finds a newjob: if the new position pays less than the previous job, the worker would receive halfthe salary difference for up to two years (Kletzer & Litan 2001).This program can be seen as a reaction to the fact that not only manufacturing jobs arebeing offshored but also other business segments, including services and R&D.197