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46 / SUPPLEMEXr I 



Indirect federal financial support encourages a climate of opportunity 

 for R&D in the United States. 



In addition to granting funds directly to performers of R&D, the federal gov- 

 ernment creates incentives for private spending on R&D in industry' and academic 

 institutions: 



• Since its inception in 1790, the U.S. patent system, for example, has pro- 

 vided an incentive to inventors to develop and to disclose, use, and profit from their 

 inventions. 



• Since 1954, industry has been able to deduct the full costs of R&D from 

 income before taxes in the year in which they were incurred, while depreciating 

 the costs of facilities and major equipment. Since passage of the Economic Recov- 

 ery Tax Act of 1981, a series of special tax credits have been offered to firms that 

 increase their R&D spending above previous levels. Individuals and corporations 

 that make charitable contributions in support of research in educational institutions 

 also are eligible for tax savings. 



• The Stevenson-Wydler Technology Innovation Act of 1980 opened the 

 federal laboratories to industry, making available not only specialized and unique 

 facilities, but also opportunities for R&D partnerships with joint funding and the use 

 of federally developed technology for profit-making ventures. That' same \'ear. 

 Congress passed the Ba\'h-Dole Act, which conferred ownership of patent rights to 

 universities, small businesses, and nonprofit organizations, thus providing a strong 

 incentive for commercial development. In 1984, the National Cooperative Research 

 Act amended the antitrust statutes to facilitate cooperative R&D among competing 

 firms. 



• With increasing frequency, the federal government has cost-shared with 

 firms and consortia to underwrite precompetitive technology development projects 

 in such areas as manufacturing technology or technology with a strong potential for 

 application in both defense and commercial arenas (so-called dual-use technology). 



• By formally and informally identifying areas of technological opportunirv 

 and by convening expens from a variety of organizations to address technical top- 

 ics, government leadership helps initiate cooperative R&D ventures that otherwise 

 might not be arranged by competing firms. 



Many other federal policies and programs have indirect effects that can 

 foster or impede innovation and affect the environment for R&D. 



Policies in many areas can have dramatic, if indirect, effects on private spend- 

 ing on research and development and, hence, innovation. For example, tax code 

 provisions of the kind mentioned above, such as accelerated depreciation, invest- 

 ment tax credits, and capital gains preferences, can reduce the corporate cost of 

 capital for R&D investments and increase the supply of risk capital to commercialize 

 new technologies. Trade policy can open new markets for high-technology goods. 

 Regulation is centrally important for new drugs and agricultural products. 



Some public policies, however, can hinder the conduct of R&D in universities, 

 industry, and other private institutions, even though that is not their aim. Adopted 



