The defense research and development community needs healthy levels of investment from both government and industry, but industry’s internal research and development funding has dropped “fairly dramatically” over the past decade, Defense Department research officials told the Senate Appropriations defense subcommittee Wednesday.
Subcommittee chairman Dick Durbin (D-Ill.) asked a panel of six witnesses what they thought of the research and development tax credit, which is among dozens of business and individual tax credits that may be extended by the Senate this week. Durbin said that some lawmakers have argued they could renew the tax credit without finding a spending reduction elsewhere in the budget, whereas if he tried to add research and development funding for any the military research offices, he’d have to find a spending offset somewhere else in the budget. Durbin wanted to know how the tax credit would compare to additional public funding in terms of helping push projects forward.
The director of Defense Advanced Research Projects Agency, Arati Prabhakar, told Durbin that the defense research community was an ecosystem that included both public and private investment, and “all the portions have to be healthy.”
“It matters that our companies continue to make the R&D investments, which they make in order to build the next products and services that they can sell at a profit,” she said. “That’s what they do, that’s how the economy works – very important, but different than the public R&D investment that is made. In our cases, of course, we’re making that R&D investment for national security purposes, and our portfolios are chock full of the kind of research that simply isn’t going to get invested in by private companies” because it can involve high up-front costs, high-risk, or low profit margins for one reason or another.
Prabhakar said she would support the tax credit to spur more research within industry, but that cannot take the place of public investments.
Alan Shaffer, acting assistant secretary of defense for research and engineering, told Durbin “I’m not going to get into taxes and tax policy, but I will tell you we are trying to make the industrial research part of what we’re thinking about every day in the department. We’ve made a strong emphasis on IRAD, but we’re seeing data coming out of the industrial sector … [showing] the amount of industrial IRAD over the last decade has declined fairly dramatically to the point where some of our major defense contractors are not putting much money into R&D. And that is a concern because they are part, as Arati said, of the entire ecosystem.”