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The Effects of the Tax Reform on Energy and Environmental Research and Development

The Effects of the Tax Reform on Energy and Environmental Research and Development

Full Title: The Effects of the Tax Reform on Energy and Environmental Research and Development
Author(s): Philip Rossetti
Publisher(s): R Street Institute
Publication Date: June 2, 2021
Full Text: Download Resource
Description (excerpt):

Changes in the 2017 tax reform to the tax treatment of research and development (R&D) may be an explanation for an observed increase in private sector R&D investment in energy and environmental R&D (E&E R&D). Prior to the tax reform, private sector E&E R&D was relatively stagnant, only increasing by 2 percent from 2012-2017. After the tax reform, E&E R&D jumped by $3.3 billion, or 11.8 percent. Private sector E&E R&D is roughly seven times as large as public sector R&D and fulfills a fundamentally different role in the innovation life cycle than public sector R&D, so the increase in private sector innovation may mark a win for investment in technologies that are key in the pursuit of global climate objectives.

As policymakers move forward, they should keep in mind the significant impact that tax policy has on the incentives for the private sector to invest in innovation in the United States, including sectors that may be key for broader political priorities like climate change. They should also exercise discipline when seeking to raise taxes on capital, as they may inadvertently diminish investment opportunities in sectors that policymakers are otherwise seeking to amplify.

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