Connecticut Has to Get R&D Right
Three major concepts—research and development is key to Connecticut’s future, R&D tax credits more than pay for themselves by driving economic activity, and state R&D policy must be stable—are vital to attracting and keeping high-growth jobs in the state.
Connecticut lawmakers are considering several proposals that could help restore sound R&D policy this year after a rocky 2015.
Getting R&D policy right is critical to Connecticut’s future because, in some sense, every Connecticut business is a technology business and dependent on R&D.
It’s easy to see how a new jet engine or medicine is the product of lots of R&D—taking years to develop and investments of billions of dollars.
But so are many other Connecticut products.
Take packaging. Today, it’s far beyond just the physical cutting and shaping of paper and plastic and much more about sophisticated, computer-aided design and computer-aided cutting and shaping.
And while we’re not a low-cost state, we are a high “value-added” state. R&D here creates the innovation for which people across the globe are willing to pay a significant premium.
To keep R&D thriving in Connecticut—producing good jobs and healthy state revenues—we have to stay a place where intellectual property creation is valued and rewarded.
For every $1 of R&D tax credit, $30 is invested across Connecticut.
SB 399 in the Connecticut legislature's Commerce Committee and HB 5595 in the Finance Committee would restore the credits; HB 5574 in Commerce would allow companies to use stranded credits.
R&D is a powerful jobs driver and generates a vast amount economic activity--Connecticut’s tax department found that state R&D tax credits produce a return on investment of 30-1.
That means for every $1 of R&D tax credit, $30 is invested across Connecticut.
As important as restoration of R&D tax credit rates is, R&D policy also should be stable--companies need to be confident that our R&D tax credit is durable and our R&D policy is settled.
It’s often overlooked that companies have based long-term decisions on previously codified rates and that a tax credit can be taken only after an R&D investment has been made.
Today our state policy is so unsettled that companies struggle with whether they can take our R&D credits into account as they project the cost of doing business in Connecticut.
Many are told by investors and their accountants that they cannot factor our credits into analyses of the cost of doing business here due to uncertainty over the credits’ remaining intact over the short-run, much less the long run.
So, an effective policy is diminished as an economic development tool because companies just can’t use it in their tax projections.
Restoring R&D tax credits will make little sense if it’s not part of a broader effort to bring order and stability to Connecticut’s overall fiscal outlook.
Restoring them this year only to scale them back next year to balance the state budget would increase the sense that Connecticut tax policy is always unstable.
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