Tax Credits and Medical Research
A good example of the possible societal benefits of tax credits is the tax credit for medical research.
Tax Credits and Medical Research
Congress has used the concept of tax credits for years to encourage certain activities that tend to benefit the country as a whole. These credits encourage activities that might not be pursued with as much zeal without the financial motivation of reduced taxes. What such area where tax credits have been used is the area of Research and Development especially in the area of Medical Research.
The rationale used by Congress when proposing legislation to grant tax credits for research and development is that companies have been reluctant to divert funds to this area because of the uncertain returns. By spurring research by the offering of tax credits, the hope is to create technological advances that will have a tendency to spur economic growth. The idea is that economic growth would result in increased tax revenue anyway which would make up for the loss incurred by granting the credits in the first place.
Since 1981, the Research and Experimentation Tax Credit has allowed Corporations to take a tax credit for research expenditures that exceeded a certain base amount. This was always a temporary provision of the IRS tax code, but Congress renewed it many times. The credit did not apply when the research was directed toward improving the cosmetic appeal of the products of the corporation. It did not apply to products that were artistic in nature. Medical firms were always able to take advantage of the credit.
Great advances have been made in the area of Medical science. Each passing month brings more, but the general feeling is that even more could be done if more time and effort was put into Medical Research. In the past several years, several bills have been introduced in Congress that would extend existing tax credits for medical research or introduce even more. It is the feeling that in this time of economic uncertainty, any type of incentive that could continue the march of progress in the field of medicine would be beneficial to everyone.
Studies done on the impact of past tax credits for medical research have shown them to be extremely effective in stirring Medical Corporations to expand their research and development efforts. They have also shown that this increased effort has produced improvements in medical techniques that have saved, extended, or enhanced the quality of many lives. They have also led to the development of drugs and other products that have resulted in larger profits for the Medical Companies that produced them. This in turn results in larger business tax revenues offsetting the original credits. It was a win/win situation.