The Metropolitan Policy Program at the Brookings Institution has taken up the task of crafting a constructive response to the "fiscal cliff." Among other things, it has proposed a modest carbon tax as an alternative for new revenue. It also has called for an independent panel to identify redundant and wasteful federal programs, the recommendations handled by Congress in the up-or-down way of military base-closing commissions.
Much of the attention in Washington has trained on the fate of income tax rates for those households paying at the top of the scale. Yet there are several items related to the tax code set to expire today, the end of the year. None is more important than the tax credit for research and development (or experimentation) in the private sector.
Brookings makes a persuasive argument for making the tax credit permanent, and more, updating and improving its performance.
The credit is an American idea, the United States the first to provide such an incentive for cultivating innovation. The credit has been a success. Brookings notes that many companies are reluctant to invest in research and development, the spillover effect often denying a full return. The tax credit makes the commitment more attractive....
Updating and making permanent the tax credit shouldn't be hard politically....No package to address the fiscal cliff is complete without an improved tax credit for research and development.