Policy changes or redirection of federal spending would help ignite government innovation, but for the effort to take root, legislators would have to view it a high priority, according to the head of the Congressional Budget Office.
Douglas Elmendorf, CBO director, presented at the April 23 NBER Conference on Innovation Policy and the Economy, highlighting possible policy approaches for fueling innovation in government.
Innovation has long been a cornerstone in the Obama administration’s strategy for economic growth and fiscal prosperity. Shortly after the president took office in 2009, he unveiled the Strategy for American Innovation, which details how innovation is crucial to the nation’s prosperity. The main purpose of the plan is to harness the ingenuity of citizens to ensure economic growth.
Since the release of the framework, the White House has kicked off multiple efforts to spur innovation. As late as April 2, Obama unveiled the BRAIN initiative, which strives to map the human brain. A total of $100 million will be invested in the project and divided between the National Institutes of Health, the Defense Research Projects Agency and the National Science Foundation.
Some of the innovation spurring has been in collaboration with the private sector to gain fresh ideas into how to fix some of the nation’s most pressing challenges. The Presidential Innovation Fellows program, for example, was launched in 2012 to bring innovators from industry and academia into government for a fixed period of time to solve long-standing issues.
In his presentation, Elemendorf highlighted areas of consideration to encourage innovation, including raising or redirecting federal funding for R&D; increasing government support for education; changing tax treatment of private investment; and boosting immigration of highly skilled workers.
However, for the effort to be buoyed by congressional support, lawmakers would have to consider innovation spurring as an key national priority, the CBO head added.
Federal spending for R&D has seen an upswing in real dollars in certain areas over the past couple of decades. For example, in 2012, $140 billion and $100 billion were invested in health and defense R&D, respectively, compared with $75 billion and $60 billion in 1982 in the same sectors, according to Elmendorf’s presentation citing data from the American Association for the Advancement of Science.
However, while federal spending for R&D has increased in real dollars, it has taken a slight dip relative to gross domestic product. And relative to GDP, federal spending for research has stayed the same and declined for development. Because of caps on discretionary funding under current law, federal discretionary spending is leveling out in real dollars.
There are several ways to increase federal support for education, including intensified attention on science, technology, engineering and math education. That approach would include allocating more funds toward academic research in STEM fields, and providing a higher number of scholarships to STEM students. In addition, a more general-education approach would include holding down interest rates on student loans and providing more generous Pell grants for lower-income students.
The federal tax treatment of private investment could also be changed, Elmendorf said, including enhancing the R&D tax credit and making it permanent. Another avenue to consider, Elemendorf said, is upping the credit for newer firms from 14 percent to 20 percent, and including other types of investment.
Increasing immigration of highly skilled workers could be done through various approaches, Elmendorf said. For example, quotas for H-1B visas could be raised or even eliminated, and foreign students studying STEM could be allowed to stay in the U.S. after graduating. Another possibility would be to increase permanent visas for workers, he added.