NEW STUDY: Improved State R&D Tax Policy Could Generate As Much As $13 Billion In Increased Economic Activity, Add 97,600 New Permanent Jobs

  • Texans for Innovation Study Underscores Need for Smart Incentives to Drive “First Phase” of Manufacturing Innovations
  • Release Date: February 20, 2013

NEW STUDY: Improved State R&D Tax Policy Could Generate as Much as $13 Billion in Increased Economic Activity, Add 97,600 New Permanent Jobs

Texans for Innovation Study Underscores Need for Smart Incentives to Drive “First Phase” of Manufacturing Innovations

AUSTIN, TEXAS— Texas could enjoy more than $13 billion in increased economic activity and 97,600 new permanent jobs if the state embraces a more competitive package of Research and Development (R&D) incentives and tax credits, according to a study released today by Texans for Innovation. Texans for Innovation is a diverse coalition working to extend the manufacturing sales tax exemption to materials and equipment used for R&D purposes and to reinstate the R&D franchise tax credit.

“We want Texans to appreciate what R&D means to our larger economy and to the creation of new, good-paying jobs for Texans and their families. This economic research shows that strategic incentives aimed at increasing R&D in Texas can be a real game changer,” said Tony Bennett, president of the Texas Association of Manufacturers and a founding member of Texans for Innovation.

“For large and small companies in industries like manufacturing, high-tech, energy, biotechnology, R&D is the critical ‘first phase’ where questions, ideas, and problems are fleshed out in labs, the field or production facilities to become the products and solutions that power the Texas economy,” added Bennett. “The R&D process is where it all starts.”

The coalition’s study also finds that the absence of an R&D franchise tax credit in Texas is detrimental to the economy. Texas’ share of national business-based R&D increased when the R&D franchise tax credit was implemented in 2001 and then fell when it was repealed in 2006.

As a result, it’s not surprising that the state’s share of the nation’s R&D spending is now below what it should be. During 2010, Texas accounted for:

  • 8.1 percent of the nation’s population;
  • 8.4 percent of the national economy;
  • 7.3 percent of national academic R&D spending; and
  • 5.2 percent of business-based R&D activity

The lack of an R&D franchise tax credit is costing the state more than $3.1 billion in lost economic activity annually and 23,600 jobs, according to the study conducted by Austin-based TXP, Inc.

“The impact of R&D on the state’s larger economy is significant,” said Jon Hockenyos, founder and president of TXP. “Texas’ current tax policy concerning research and development (R&D) puts Texas at a significant competitive disadvantage versus other states across the nation. Currently, Texas is one of only seven states that do not offer some type of tax incentive for R&D.”

As state leaders prioritize programs and funding during the next Legislative Session in 2013, Texans for Innovation members say a two-pronged public policy approach can best address the findings in their economic impact study:

  • Extending the existing manufacturing sales tax exemption to materials and equipment used for R&D purposes
  • Reinstating the R&D franchise tax credit first enacted in 1999 and repealed in 2006

“We need public policy that puts Texas in the driver’s seat in R&D. Otherwise, we run the risk of watching private research and development investment - and jobs that go with it - seek out greener pastures in other states,” said Dale Craymer, president of the Texas Taxpayers and Research Association (TTARA).

“Texas should be doing all it can to encourage growth in the manufacturing sector. Broad-based, low-rate taxes and smart incentives that encourage research and development are central to this growth equation,” said Chairman Jim Murphy, House Interim Committee on Manufacturing, who recently introduced House Bill 800, related to R&D incentives.

Media contact: Gretchen Fox, gfox@gfoxconsulting.com, 512-694-4326