Federal Innovation Policy: The Current Context and Some Possible Changes

Posted by Doug Elmendorf on
September 30, 2013

I spoke on Friday at a conference on “Federal Tax Policy and Entrepreneurship” sponsored by the Kauffman Foundation and hosted by the Tax Policy Center at the Brookings Institution. My presentation (shown below) explored a wide array of possible changes in federal policy that might bolster innovation, including increased spending on research and development, increased support for education, lower taxes on private investment, greater immigration of skilled workers, patent reform, and adjustments to regulatory policies. That presentation was an update to a previous presentation I gave earlier this year—in particular, the numbers have been updated to reflect CBO’s most recent budget data and projections, and the slides include new data on patenting activity released by the U.S. Patent and Trademark Office. Given the focus of the conference, I also included a few new slides on how policies focused on encouraging innovation relate to entrepreneurship and to small, innovative firms.

The policy proposals discussed in the presentation fall into two general categories: those that would require additional federal resources, either directly though appropriations or indirectly through foregone revenues due to changes in the tax code; and those that would modify the legal and regulatory framework, either directly through changes in patent law or regulations or indirectly through immigration reform. CBO’s role is to present to the Congress the advantages and disadvantages of different policies, so, as always, I made no recommendations. Instead, I concluded that, all of the approaches to enhancing innovation would require either a redirection of federal money from other purposes or compromises on other national goals, which would require that spurring innovation be viewed by lawmakers as an important national priority.