Removing Barriers to Innovation

On Wednesday, July 13, National Journal hosted the Innovation Works Conference in the Ronald Reagan Building in Washington, D.C. The conference consisted of a series of panels of innovators and policy makers who discussed the state of innovation in America today and how to foster its growth.

The second panel, entitled “What Best Drives Innovation?” was moderated by Matthew Cooper, Editor of the National Journal Daily, and consisted of U.S. House Representatives Donna Edwards (D-MD) and Dana Rohrabacher (R-CA), Mr. Reed E. Hundt, Principal of REH Advisors, Ms. Susan Lund, Principal and Director of Research of McKinsey Global Institute, and Mr. Gary Shapiro, President and CEO of the Consumer Electronics Association.

The discussion revolved around the impacts of the new patent law change and of the current U.S. tax system on innovation. Rep. Rohrabacher and Rep. Edwards shared their displeasures with the new patent law reform that passed through the House on June 23. They think the new law will hurt small inventors, who are less likely to have the know-how or capital needed to get their inventions patented before corporations can get these patents (corporations usually have a team of lawyers and large budgets devoted solely to obtaining patents). Shapiro applauded President Obama for proactively protecting American intellectual property abroad, especially from ambitious countries like China.

Shapiro suggested that U.S. innovation is being “stifled” by how we tax and went on to say that the role of the federal government and of the tax code should be to create the right environment for business and innovation, not necessarily just to throw money at select endeavors or projects. Hundt expanded on this idea, saying that the tax code must be reformed to allow US companies with foreign branches to bring their money back into the U.S. without the sharp penalty of repatriation these dollars face now. The current situation is hurting innovative potential by keeping funds locked up abroad; we need to bring it home, he said. Rep. Edwards added that increasing the strength of the incentive provided by the U.S. Research and Development tax credit would greatly benefit our innovation and experimentation environment. Even though we were the first country in the world to have an R&D tax credit, as of 2009, our tax credit only ranked 24th among 38 industrialized countries with similar tax credits. Congress strengthened the credit by adding an alternative simplified credit (ASC) formula in 2007 that extends the credit to companies of more sizes. The ASC stands at 14 percent today, but in order to be competitive globally it would need to be increased to 20 percent.

The problem of keeping jobs and talent in America was also discussed. Rep. Rohrabacher critiqued our policy on China, citing that it needs to actively support Americans, and not multinational corporations that are only looking out for themselves. These multinationals are transferring huge amounts of money abroad (with many going to China) and drawing people that would otherwise have to come to the U.S. to work and boost the U.S. economy to follow these corporations to places like China. This is hurting us in all economic areas and especially in innovation, he said. People come to the U.S. to get educated then take that education away; we need to keep the talent here somehow. Shapiro agreed, adding his idea that maybe an accelerated path to citizenship could be an incentive to keep foreign nationals here in the U.S.; these people will be assets to companies that boost the U.S. economy and also will spend money in our economy, thereby creating jobs for Americans, he argued.

Hundt drew applause when he pointed out that despite all of our problems and divisions and the spreading concern that the current tone of American politics makes it sound like the U.S., as a nation, is in deep, deep decline, we remain the most successful multicultural nation in the world and retain the world’s largest economy. And he thinks that’s something worth noting.