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The current U.S. recession is due in part to a shortfall in innovation and competitiveness. Those lags, in turn, can be traced to the U.S. corporate tax code. U.S. statutory and effective corporate tax rates are high compared to those of other nations. Moreover, the code provides only minimal incentives for companies to invest in the building blocks of innovation: research, new capital equipment, and labor skills. It is time to redesign the tax code to help turbocharge the U.S. innovation engine. Doing so will improve U.S. competitiveness, not only by reducing international tax differentials, but by also spurring more domestic investment in R&D, productivity-enhancing capital expenditures, and worker training.
Unfortunately, many Washington economists-principally neoclassical economists-oppose using the tax code to explicitly spur innovation and do not believe that the U.S. is in competition with other nations.
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