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Do R&D Tax Credits Really Help Manufacturing?


Critics of tax breaks for manufacturers describe state and federal policies as “corporate welfare” and claim that tax-based incentives are ineffective. As a recent article from the State Science & Technology Institute (SSTI) explains, however, research and development (R&D) tax credits help more than just manufacturing companies. Two new studies show how businesses that claim R&D tax credits are less likely to lay off employees, and are more likely to support satellite industries through capital expenditures.
In an HEC Paris study entitled Can Innovation Help U.S. Manufacturing Firms Escape Import Competition From China?, authors Johan Hombert and Adrien Matray describe how some manufactures reduce capital expenditures and employment levels when international competition increases. R&D-intensive companies are less likely to cut these expenses, however, and are more likely to increase investments in both labor and capital. For these manufacturing firms, R&D tax credits promote resiliency.
A study by the Federal Reserve Board reaches similar conclusions. In Why Do Innovative Firms Hold So Much Cash?, authors Antonio Falato and Jae Sim examine the relationship between innovation, liquidity, and state R&D tax credits. As tax incentives increase, corporate liquidity grows and companies spend more not just on innovation, but on employment. As the authors also note, New York State has a tax credit of 3% for qualified incremental R&D expenditures, and eligibility is conditional on job creation covenants.
Are you a New York State manufacturer with R&D-intensive operations? Have you claimed the R&D tax credit before, or are you planning to do so this year?
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Image Credit: © Kurhan/Dollar Photo Club


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