The government supports S&T through a number of policy measures, the most direct of which is the conduct and funding of R&D that would not or could not be conducted or financed in the private sector. This section presents data on federally funded R&D activities, on the government's contribution to the U.S. R&D infrastructure, and on federal R&D tax credits, which serve as an indirect means of stimulating R&D in the private sector.
The budget appropriations for federal spending on
R&D in FY 2009 (signed into law in March 2009) totaled
$147.1 billion (table
In addition, a one-time but sizable increase in budget
authority for federal R&D was provided by the American
Recovery and Reinvestment Act (ARRA) (Public Law
111-5) in early 2009. In a preliminary estimate (May 2009),
the White House's Office of Science and Technology Policy
placed the overall increase of federal R&D and R&D
infrastructure funding from ARRA at about $18.3 billion in
FY 2009 (table
Adjusted for inflation, the enacted federal budget for FY 2009 represents a 0.8% increase in constant dollars. The increase proposed by the president for FY 2010 represents a constant-dollar decline of 0.6%. The ARRA funding is a sizable increase, whether in current-dollar or inflation-adjusted terms. The overall effects on the growth of federal R&D funding in either year depends on whether added spending under ARRA occurs in FY 2009 or FY 2010.
The largest increases among the agencies in the FY 2009
budget for R&D go to the National Institutes of Health
(NIH), with an increase of $1.2 billion; the Department of
Energy (DOE), up $814 million; and NSF, up $277 million
The president's FY 2010 proposal for federal R&D notes investment priorities in four main areas, as follows:
To assist Congress and the president in evaluating and setting the federal budget and its components, the Office of Management and Budget classifies agency budget requests into specific categories called budget functions. Budget functions represent a wide range of national objectives that the government wants to advance, from defense to health to transportation.
In the FY 2008 budget, defense was the largest budget function, accounting for $81.1 billion (current dollars), or 59% of the federal R&D budget (appendix table
The proportional split between defense and nondefense
R&D has fluctuated over the past several decades (figure
The most dramatic change in federal R&D priorities over the past 25 years has been the increase in health-related R&D (figure
The budget allocation for space-related R&D peaked in the 1960s, during the height of the nation's efforts to surpass the Soviet Union in space exploration. The loss of the Space Shuttle Columbia and its entire crew in February 2003 prompted curtailment of manned space missions. In more recent years, NASA's nondefense R&D budget share has increased, growing from 14% in FY 2005 to 17% in FY 2008. Nearly 58% of NASA's $17 billion budget in FY 2008 was allocated for R&D; adjusted for inflation, the space-related R&D total was higher in FY 2008 than at any time since FY 1999.
Federal nondefense R&D classified as general science had about a 9% share in the mid 1990s, growing to 14% in FY 2008. However, this change reflected chiefly a reclassification of several DOE programs from energy to general science in FY 1998.
With respect to the federal budget for basic research, 94%
of the funding in FY 2008 resided in nondefense budget
functions (appendix table
Federal R&D obligations totaled an estimated $114.6 billion
in FY 2008 (the most recent year for which complete
data are available). An additional $1.8 billion was obligated
for R&D plant (facilities and equipment). Federal obligations
for R&D have increased annually on a current-dollar
basis since the early 1990s, but when adjusted for inflation,
the increases flatten out after FY 2005 (appendix table
More than 20 federal agencies fund R&D in the United
States. In FY 2008, seven agencies committed more than
$1 billion each for R&D (figure
Department of Defense
DOD funds more than half of all federal R&D, having provided an estimated $58.7 billion (51%) in FY 2008. Of this total, $51.8 billion, or 88%, went to development, the majority ($45.8 billion) being allocated for "major systems development," which includes the primary activities for developing, testing, and evaluating combat systems.
Extramural performers received 71% of DOD's R&D obligations ($41.8 billion), the bulk going to industrial firms ($38.6 billion). DOD accounted for about 84% of all federal R&D funding to industry in FY 2008. DOD intramural R&D accounted for 26%, and FFRDC R&D accounted for 3%.
Department of Health and Human Services
The Department of Health and Human Services (HHS) is the primary federal source of funding for health-related R&D. In FY 2008, it obligated an estimated $29.7 billion, or 26% of all federal R&D, most ($28.5 billion) being R&D funding by NIH. HHS R&D funding is almost entirely allocated for research (almost 54% for basic and 46% for applied). Development activities accounted for less than 1% of the HHS total.
Extramural performers accounted for 80% ($23.8 billion) of FY 2008 HHS R&D obligations. Universities and colleges received $17.1 billion; other nonprofit research organizations, $4.4 billion. HHS provided about 67% of all federal R&D funds distributed to universities and colleges in FY 2008 and 74% of federal R&D funds distributed to nonprofit institutions.
Department of Energy
DOE obligated an estimated $8.2 billion to R&D in FY 2008, 7% of the federal R&D total. Research accounted for 76% of these obligations (40% for basic and 36% for applied). FFRDCs received about 66% of DOE R&D obligations. Many of DOE's research activities require specialized equipment and facilities available only at its intramural laboratories and FFRDCs. Accordingly, DOE invests more resources in FFRDCs than other agencies. In FY 2008, DOE funds accounted for 59% of all federal R&D obligations to FFRDCs.
National Aeronautics and Space Administration
NASA obligated an estimated $6.2 billion to R&D in FY 2008, 5% of the federal R&D total. Of this R&D support, 66% funded development activities; 21%, basic research; and 13%, applied research. Extramural R&D (chiefly by industry performers) accounted for 64% of NASA's R&D obligations in FY 2008. Agency intramural activities represented 19%—and FFRDC activities, another 17%—of the NASA R&D total.
National Science Foundation
NSF obligated an estimated $4 billion for research in FY 2008. About 92% of NSF's support funded basic research, and 95% funded extramural performers, chiefly universities and colleges ($3.3 billion). NSF is the federal government's primary source of funding for academic, basic S&E research and the second-largest federal source (after HHS) of R&D funds for universities and colleges.
Department of Agriculture
The U.S. Department of Agriculture (USDA) obligated an estimated $2.4 billion for R&D in FY 2008, with the main focus on life sciences. The agency is also one of the largest research funders in the social sciences, particularly agricultural economics. Of USDA's total obligations for FY 2008, about 64% ($1.5 billion) funded intramural R&D, chiefly the Agricultural Research Service.
Department of Commerce
The Department of Commerce (DOC) obligated an estimated $1.1 billion for R&D in FY 2008, mainly for the R&D activities of the National Oceanic and Atmospheric Administration and NIST. Research accounted for 91% of the R&D for the department as a whole (10% for basic research and 81% for applied research); 78% of the total was for intramural R&D; and almost 22% supported extramural performers, primarily universities and colleges.
Of the other R&D-funding agencies, eight obligated between $100 million and $1 billion for R&D in FY 2008 (table
The federal government has historically been the primary source of funding for R&D performed by universities and colleges. Federal obligations for academic R&D in FY 2008 totaled an estimated $25.7 billion (current dollars). As figure
Federal funding of academic R&D grew rapidly after FY 1998, the result of a successful bipartisan effort to double the budget of NIH from its FY 1998 level over the following 5 years. Since FY 2004, however, federal R&D obligations to universities and colleges have failed to keep pace with inflation. (For additional details on academic R&D, see chapter 5.)
Federal obligations for R&D performed by businesses totaled an estimated $46.0 billion in FY 2008. For decades, the business sector has consistently received the bulk of federal R&D funds (figure
Space program investments in the 1960s fueled the growth of federal obligations for business R&D, but after the successful Apollo 11 mission to the moon, R&D obligations to industry declined. A decade later, Cold War investments in military technology resulted in a renewed period of growth. Similarly, military investment in the aftermath of September 11, 2001, has increased the flow of federal R&D funding to industry. Adjusting for inflation, federal R&D obligations to industry increased by 42% from FY 2001 to 2008.
The amount of federally funded R&D reported by industry began to diverge from the amount reported by the federal government beginning in FY 1989. For details on this discrepancy, see the sidebar "Tracking R&D: The Gap Between Performer- and Source-Reported Expenditures."
Federal Intramural R&D
Federal obligations for federal intramural R&D totaled an estimated $26.8 billion in FY 2008. These funds supported R&D performed at federal agencies' intramural laboratories, as well as the costs associated with the planning and administration of both intramural and extramural R&D projects.
Among individual agencies, DOD funds the most intramural
R&D, having accounted for 56% of all federal obligations
for intramural R&D in FY 2008 (table
Unique organizations in the federal R&D system, FFRDCs were established to help the U.S. government meet special long-term research or development needs that could not be met as effectively by existing in-house or contractor resources. They were first established during World War II to assist DOD and DOE with R&D on nuclear weapons. Today, FFRDCs perform R&D for both defense and civilian applications across a broad range of S&E fields. Of the 37 currently active FFRDCs (appendix table
Five FFRDCs reported R&D obligations of more than $600 million in FY 2007: Los Alamos National Laboratory (DOE), Jet Propulsion Laboratory (NASA), Lawrence Livermore National Laboratory (DOE), Sandia National Laboratory (DOE), and Oak Ridge National Laboratory (DOE). These five accounted for 55% of the FFRDC total that year. Los Alamos National Laboratory and Lawrence Livermore National Laboratory are the only two laboratories in the United States where research on the nation's nuclear stockpile is conducted.
Federal agencies fund research (that is, basic research plus applied research, excluding development) in a wide range of S&E fields, from physics and mathematics to aeronautical engineering to sociology. Furthermore, the share of funding for research differs by field, as do the trends in funding over time.
In FY 2008, an estimated $55.1 billion (48%) of the
$114.6 billion for all R&D supported research. Of this total,
$29.7 billion (54%) supported research in the life sciences
HHS, primarily through NIH, accounted for the largest share (54%) of federal obligations for research in FY 2008. Most of this amount funded research in medical and related life sciences. The five next-largest federal agencies for research funding that year were DOD (12%), DOE (11%), NSF (7%), USDA (4%), and NASA (4%).
DOD's research funding emphasized engineering ($3.7 billion), and mathematics and computer sciences ($1.2 billion). DOE provided substantial funding for research in the physical sciences ($2.4 billion) and engineering ($2.2 billion), whereas USDA's research funding was chiefly directed at the life sciences ($1.8 billion). NASA's research funding emphasized engineering ($0.8 billion), followed by the physical sciences ($0.6 billion) and environmental sciences ($0.5 billion). NSF, which has a mission to "promote the progress of science," had a relatively balanced research portfolio, contributing between $0.6 and $0.8 billion to researchers in each of the following fields: mathematics and computer sciences, physical sciences, engineering, environmental sciences, and life sciences.
From 1986 to 2008, real growth in federal obligations for
research averaged 3.2% per year, increasing from $23.1 billion
in 2000 dollars in FY 1986 to $45.0 billion in FY 2008
Contributions of R&D to economic growth and social welfare, along with likely underinvestment by private performers, given the difficulty in fully appropriating R&D benefits, are often cited as reasons for justifying public support for R&D (NRC 2005b). In addition to direct government funding discussed earlier in this chapter, fiscal policy tools used to provide such support include tax incentives. The federal government offers several corporate tax incentives for qualified R&D expenditures including a deduction under Internal Revenue Code (IRC) section 174 (C.F.R. Title 26) and a tax credit under section 41. As of 2006, at least 32 states also offered credits for company-funded R&D (NSB 2008; Wilson forthcoming). This section focuses on business R&D tax credits at the federal level.
The research and experimentation (R&E) tax credit, established by the Economic Recovery Tax Act of 1981 (Public Law 97-34), covers R&D activities performed in the United States by domestic and foreign-owned firms but excludes R&D conducted abroad by U.S. companies. It is subject to periodic extensions and, at the time of writing, was last renewed by the Emergency Economic Stabilization Act of 2008 through 31 December 2009.
The R&E tax credit encompasses a regular credit, as well as credits for payments for basic research to qualified universities, scientific research organizations, or grant organizations, and for payments to energy research consortia. Under the regular credit, companies can take a 20% credit for qualified research above a base amount for activities undertaken in the United States (IRC section 41(a)(1)). Thus, the regular credit is characterized as a fixed-base incremental credit. An incremental design is intended to encourage firms to spend more on R&D than they otherwise would by lowering after-tax costs. At the same time, the actual or effective credit rate for corporate taxpayers is lower than 20% because of limitations involving deductions under IRC section 174 (Guenther 2008).
Federal Corporate Tax Credit Claims
According to the IRS Statistics of Income Division (SOI), U.S. companies claimed an estimated $7.3 billion in federal R&E tax credits in 2006, involving close to 11,000 corporate tax returns, compared with $6.4 billion in 2005 (table
For all industries, the size of R&E claims was about 3.3%
relative to company-funded R&D in 2006, a proportion that
has changed little in recent years (figure