Obama’s R&D Budget

April / May 2010 By: Tom Michael Volume 8 Number 2

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In the midst of one of the greatest economic crises in American history, Congress and the White House have made plenty of public pronouncements about putting a lid on federal spending. But President Obama's 2011 budget makes clear technology and innovation are places he doesn't plan to skimp. The president's $3.8 trillion federal spending blueprint, just now starting to work its way through Congress, contains considerable funding increases for clean energy, biomedical research, technology infrastructure, small business development and technical education, as well as a new focus on tax incentives for research and development—a linchpin of job creation.

“The administration is committed to moving the nation from recession to recovery by sparking job creation to get millions of Americans back to work and building a new foundation for the long-term prosperity for all American families,” the White House declared in a statement shortly after the budget's release. “Innovation is a central part of job creation in the 21st century economy.”

A few days before this statement, in his first State of the Union address, Obama was even more blunt:
“I do not accept second place for the United States of America,” the president declared. Obama pointed out that foreign countries—especially China, Germany and India— are remaking their economies on the cutting edge of science and technology.

“These nations, they’re not standing still,” Obama said. 'These nations aren’t playing for second place. They’re putting more emphasis on math and science. They’re rebuilding their infrastructure. They’re making serious investments in clean energy because they want those jobs.”

One of the most significant budget boosts comes in the form of civilian research and development money at the National Science Foundation, the Department of Energy's Office of Science and the National Institute of Standards and Technology. Obama has directed $61.6 billion for these endeavors, marking a 6.4 percent increase from current-year levels.

“We've added $70 million to the National Institutes for Standards and Technology to look at ways in which data standards in the information technology space can help to spur new innovation and new opportunities in areas,” said Tom Kalil, deputy director for policy at the White House Office on Science and Technology Policy, during a webcast with reporters. “This is not just in health care, but in energy and in manufacturing. We have seen already their fruits of this effort.”

The civilian research and development budget includes $300 million for the Advanced Research Projects Agency-Energy, or ARPA-E, at DOE. In the last issue of Innovation, the agency's new director, Arun Majumdar, the celebrated former UC Berkeley environmental energy professor, said he's ready to put that money to use to develop the best new ideas for science and innovation.

“We want to find the next Wright brothers,” Majumdar said. "ARPA-E is willing to consider ideas from a wide range of sources.” Energy is a giant focus of new spending in the budget, building on billions invested in the Recovery Act last year. According to the White House, the budget aims to form a comprehensive approach to transforming energy supply and slowing global climate change. The R&D money in the budget supports renewable energy and energy efficiency technologies such as advanced batteries, solid-state lighting, solar, biomass, geothermal and wind power. The budget also pays for research and development of advanced coal-fueled power systems and carbon capture and storage technologies, as well as science-based nuclear energy R&D programs to improve nuclear technologies and their market competitiveness.

The White House's focus on energy investment includes $40 billion in loan guarantees that would allow the private sector to access more capital to help build a national clean energy ecosystem. The Department of Agriculture gets in on the energy research mix, as well, with about $170 million penciled in to the Obama budget to help the agency research next generation capabilities, some of which could help rural communities create more jobs.

The budget also contains a push to make the research and development tax credit permanent, a move that many economic experts believe is necessary to create long-term certainty for potential investors. Created in 1981, the tax credit has been extended at least 13 times and has now been allowed to lapse.
“When companies make an investment in R&D, they're making an investment in three, five, ten-year time frames,” Kalil said. “If they don't know from one year to the next whether it's going to be extended, they can't count on it. So, I think we could really increase its effectiveness by making it permanent.”

The White House budget maintains the U.S. commitment to biomedical research, as well, investing $32.9 billion at the National Institutes of Health (a $1 billion increase from 2010) as well as facilities across the country where roughly 300,000 scientists and other research personnel work to advance science in the name of human health and wellness. Priority areas include genomics, translational research, global health and reinvigorating the biomedical research community. That includes $6 billion for expanded cancer research, and $143 million to try to solve the devastating puzzle of autism spectrum disorders.

Finally, under the president’s executive order and subsequent NIH guidelines for human stem cell research, NIH approved 40 responsibly-derived stem cell lines—nearly double the previous number of lines available—for ground breaking research. Additionally, NIH will pursue the discovery, development and pre-clinical testing of novel compounds for the prevention and treatment of symptoms associated with Alzheimer’s disease.

Math and science education—the most important building block of innovation—also sees a significant boost in the budget. In July 2009, Obama issued a national challenge to reshape America’s educational system to prepare American students for success in a competitive 21st century economy. To that end, Congress in 2010 approved an historic $4.35 billion investment in a program called “Race to the Top.” Designed to spur innovation and the adoption and more effective education policies, the program has generated intense interest among states. Forty-one states have applied for funding, with a dozen altering laws or statewide policies to enhance their competitive edge and better align their practices to the competition.

Obama has suggested an additional $1.35 billion into the Race to the Top program to expand the program’s reach through a separate competition for school districts.

Existing business is yet another realm that would receive a big slice of competitiveness money in the president's budget. The budget provides $534 million, a 20 percent increase, to the Department of Commerce’s International Trade Administration. As part of the National Export Initiative, a broader federal strategy to increase American exports, ITA will strengthen its efforts to promote exports from small businesses, help enforce free trade agreements with other nations, fight to eliminate barriers to sales of U.S. products, and improve the competitiveness of U.S. firms.

The budget also provides $165 million in subsidies to support $17.5 billion in Small Business Administration 7(a) loan guarantees that will help small businesses operate and expand. It also proposes to increase the maximum 7(a) loan size from $2 million to $5 million. The Recovery Act allows small businesses to immediately write off up to $250,000 of qualified investment in 2008 and 2009, providing an immediate tax incentive to invest in plant and equipment and create jobs. The president is proposing a one-year extension. This provision is estimated to cut small business taxes by over $1 billion in 2009 and 2010.

Finally, Obama has proposed permanently eliminating small business capital gains. The Recovery Act encourages investment in small businesses by excluding from taxation 75 percent of the capital gains for investors in small businesses who hold their investments for five years. This provision will save small business owners nearly $1 billion over 10 years. The budget proposes to completely eliminate the capital gains tax on small business stock.

Tom Michael is Innovation’s Washington bureau chief.