R&D tax credit should bring no tidings of comfort...

It was a small gift before the holidays, buried within the extended tax relief package -- a two-year extension of the R&D tax credit. Industrial manufacturing across the country did ok by this, but they can do much better for themselves.

At a time when American innovation continues to decline, having fallen by over 50% as a percentage of GDP since 1964, it seems that a permanent and thereby predictable tax incentive for R&D would be a good idea; but then again, maybe not.

Maybe there are other forces at work. Many say, what's been getting in the way of American industrial innovation are the tax structures in the United States, that industrial manufacturers have for too long been encouraged to create jobs and profits in other countries. If this were true, you would think the U.S. ranked low on the world's innovation totem pole. When the fact is, we are still number one.

Maybe there is another reason why American manufacturers are not reaching their innovative potential, and why a permanent R&D tax credit will make no difference for many, if not most, of them: The R&D tax credit has been renewed thirteen times since 1981. At a time when "uncertainty" is the explanation for so much managerial indecision, the fact is, innovation has been tax-supported in the U.S. for decades.

If innovation as a function of building market advantage isn't paramount to every CEO and his or her core coalition, then perhaps the decline should not be blamed entirely on U.S. tax structures, or a disproportionate number of free trade agreements, or an unfair China. Maybe it is time industrial manufacturers became better marketers, better brand builders, better marketing communication strategists.

Making permanent an R&D tax credit may bring more "certainty" to some industrial manufacturing executives, but it won't make them better marketers.

jb