AT Offsets CP - Michigan 7 2023 BEJJP

Aff
Answers---Innovation
Mechanics
Doesn’t Offset---2AC
Expansion of qualifying companies flips the regressivity of the tax credit.
Lorraine Griffin et al. 22 [Lorraine Griffin is a partner and Head of Tax and Legal at Deloitte. Cathal Noone is a Tax Partner at Deloitte. Tom Maguire is a Tax Partner at Deloitte; 05-30-2022; "Research & Development Tax Credit and the Knowledge Development Box;" Deloitte; https://www2.deloitte.com/content/dam/Deloitte/ie/Documents/Tax/IE-Tax-Deloitte-Response-May-2022.pdf; Pen-MK]
Note: SMEs = Small and midsize enterprises
Our experience is that like large companies, many SMEs partake in a significant level of innovative product development, however it is often a mix of qualifying and non-qualifying R&D for the purposes of tax credits. It should also be noted that many SMEs perform qualifying R&D on behalf of their customers and hence cannot claim the credit. In the area of self-funded R&D, resources are not always available to SMEs to undertake qualifying R&D as the time period between the R&D phase and having an income generating product tend to be longer. The cash flow challenges are compounded by the time between making the claim and receiving the tax credit payments. The qualification criteria, the consequences of an audit resulting in backdated repayments up to 5 years later, putting in place the processes and documentation to support a claim, and in some cases negative experience with regards to audits all present barriers to SMEs taking the risk to make the investment and file R&D Tax Credit claims.
New measures to enhance the R&D Tax Credit for small and micro companies, including increasing the R&D Tax Credit rate from 25% to 30% and enhancing the method of calculation of the payable credit, were introduced in Finance Act 2019. These measures are subject to a commencement order, as the enhancements to the R&D Tax Credit for small and micro companies require State aid approval from the European Commission. Such amendments would make a fundamental difference to SME companies. The Government, through tax incentives and other relevant measures, should continue raising awareness through Local Enterprise Offices (“LEOs”), Enterprise Ireland (“EI”) and InterTradeIreland about the scheme and encouraging companies to take up this credit. The scheme should be expedited and promoted more actively amongst SMEs in particular. While this responsibility regarding the promotion rests with the Department of Enterprise, Trade and Employment, the Government should focus on the aligning tax measures with the State’s vision related to R&D activities.
Broadening the definitions for activities and expenditure that form a larger portion of costs for SME’s than larger companies would assist in creating a progressive tax credit approach. Earlier in our response we highlighted that the broadening of the direct costs category to include third party testing to remove it from potentially capped subcontracted expenditure would have a greater proportional benefit to small companies than large. allowing costs in relation to maintaining, repairing, and calibrating R&D equipment would have a similar effect. Increasing the €100,000 upper limit or removing the subcontracted expenditure caps altogether would have similar benefit.
Internals/Impacts
Credits High---2AC
The IRA doubled the Research and Development Tax Credit.
Jordan Mcabee ’22 [09-28-2022, "Inflation Reduction Act expands valuable R&D payroll tax credit;" Elliott Davis; https://www.elliottdavis.com/inflation-reduction-act-expands-valuable-rd-payroll-tax-credit/; Pen-MK]
When President Biden signed the Inflation Reduction Act into law in August, most of the headlines covered the law’s climate change and health care provisions. But the law also enhances an often overlooked federal tax break for qualifying small businesses.
The IRA more than doubles the amount a qualified business can potentially claim as a research and development (R&D) tax credit to offset its payroll tax for tax years starting after 2022 — to a maximum of $2.5 million over five years. The credit allows a qualified business to leverage the substantial R&D tax benefit even if it has little to no income tax liability, potentially freeing up significant cash flow.
Background on the pre-IRA credit
The Protecting Americans from Tax Hikes (PATH) Act created a permanent incentive for eligible start-up companies to pursue R&D activities within the United States. The Section 41 tax credit for qualifying in-house and contract research activities already existed, but early-stage companies that hadn’t yet incurred income tax liability couldn’t take advantage of it.
The PATH Act revised the Sec. 41 credit to allow taxpayers to elect to apply up to $250,000 of the credit against their share of the Social Security, or FICA, tax for their employees, rather than against income tax. The revision became effective for tax years that began after Dec. 31, 2015.
The payroll tax election is available to taxpayers with 1) gross receipts of less than $5 million for the tax year, and 2) no gross receipts for any tax year more than five years prior to the end of the current tax year. The latter requirement essentially limits the payroll tax credit to start-up companies. If the taxpayer had a tax year of less than 12 months, the gross receipts must be annualized for a full year.
Be aware that not all research is eligible. To qualify for the credit, the research must be:
Performed to eliminate technical uncertainty about the development or improvement of a product or process, including computer software, techniques, formulas and inventions,
Undertaken to discover information that’s technological in nature (meaning based on physical, biological, engineering or computer science principles),
Intended for use in developing a new or improved business product or process, and
Elements of a process of experimentation relating to a new or improved function, performance, reliability or quality.
Qualifying research expenses include wages for employees involved with the research, supplies to conduct it and amounts paid for the use of computers. They also include 65% of the amounts paid or incurred for contractors.
The credit equals the smallest amount of 1) the current year Sec. 41 credit, 2) an elected amount not exceeding $250,000, or 3) the general business credit carryforward for the tax year (before application of the payroll tax credit for the year). Note that the general business credit carryforward limit doesn’t apply to S corporations or partnerships.
The IRA expansion
Under the PATH Act, a qualified small business could elect to apply its R&D credit against only the 6.2% Social Security tax. Beginning with the 2023 tax year, eligible businesses will be allowed to apply an additional $250,000 against their 1.45% Medicare tax liability.
While the total maximum credit is now $500,000, that amount is bifurcated. You can apply no more than $250,000 against each prong of payroll tax liability — FICA and Medicare, respectively.
As under the PATH Act, you can claim the credit for no more than five years. Existing aggregation rules, which treat related entities as a single taxpayer for purposes of determining gross receipts, also continue to apply. Any credit is allocated among the entities, but each entity must make the election separately.
Credits Fail---2AC
The R&D Tax Credit fails.
Jason J. Fichtner 15 [Jason J. Fichtner is a former Senior Research Fellow at the Mercatus Center at George Mason University. His research focuses on Social Security, federal tax policy, federal budget policy, retirement security, and policy proposals to increase saving and investment; 8-5-2015, "The Research and Development Tax Credit Suffers from Design and Implementation Problems," Mercatus Center, https://www.mercatus.org/students/research/data-visualizations/research-and-development-tax-credit-suffers-design-and; Pen-MK]
The research and development (R&D) tax credit—which is one of the largest corporate “tax expenditures,” with an annual cost of more than $9 billion—is one of about 50 “tax extenders” that Congress reauthorizes on a temporary basis. While the tax credit is intended to encourage economic growth by functioning as an incentive for investment in new and innovative technologies, it may not be the best policy to achieve growth.
According to new research published by the Mercatus Center at George Mason University that surveys the current economic literature on the R&D tax credit, eliminating the credit and using the savings to lower the corporate tax rate for all businesses would be a more effective way to support innovation.
The tax credit is poorly targeted. Small, start-up firms conduct some of the most socially beneficial research, contributing to long-term economic growth—yet the credit is of limited or no use to them. The following charts show that the R&D tax credit is chiefly used by big businesses, providing them an advantage in the marketplace and disadvantaging small businesses.
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The first chart shows that most firms in the US economy are small—only a small fraction of firms take in over $5 million in receipts. The second chart shows a striking disparity in credit dollars distributed to the largest firms and the combined four smallest firm categories. The largest 5 percent of firms claim 95 percent of all research tax credit dollars, while the four smallest firm categories (receipts less than $5 million), which make up 95 percent of all firms, claim just 5 percent of credit dollars. Twenty-eight percent of the largest firms (i.e., those firms with business receipts over $250 million) receive a credit—compared to 1 percent of the four smallest firm classes.
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The third chart shows the spread of R&D credits claimed by firms ordered by the size of business receipts. Firms with more than $5 million in receipts compose less than 5 percent of all firms but claim 59 percent of the total credits. The largest 0.13 percent of all firms in the US claim 14 percent of the credits, while the smallest firms claim only 15 percent of credits, but make up 24.88 percent of all firms.
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The fourth chart shows trends in R&D credits between 1990 and 2011. The total number of firms claiming the credit has increased by almost 6,000 since 1990, an almost 41 percent increase. There has been a more dramatic rise in the size of dollar claims over the same period, increasing from under $200,000 in 1990 to over $600,000 in 2011. Over that same period, total dollars expended increased by $7.7 billion or 83 percent.
The R&D tax credit is a prime example of policymakers’ inability to target government programs to reap the promised benefits. The R&D credit also suffers from a poor definition of R&D, inducing wasted resources on lobbying and recurring policy uncertainty.
The inability to target businesses that carry out the most innovative and economically beneficial research is just one reason the R&D tax credit should be eliminated and the savings used to lower the corporate tax rate. Lowering the tax rate has been shown to encourage R&D investment and will help all businesses while increasing US global competitiveness.
Credits Fail---1AR
The UK’s Tax credit is failing despite being much larger than the US’. Expansion is not the answer.
Daniel Thomas 21 [Daniel Thomas is the Global Media Editor for the FT. He was previously the chief UK business correspondent, executive news editor, deputy companies editor, telecoms correspondent and head of the Technology, Media and Telecoms team in London, property correspondent and FT Money reporter. He has worked for various titles covering property, advertising, finance and media; 05-24-2021; "UK tax break failing to deliver extra R&amp;D spending, study finds;" Financial Times; https://www.ft.com/content/820a1745-05d9-49c6-8adc-afb5cfb99f3e; Pen-MK]
The UK government’s £7.3bn research and development tax credit system is failing to deliver significant additional spending by businesses, according to a report that warns the 20-year-old policy could prove a “costly failure”. Aggregate business expenditure on R&D in the UK, as a percentage of national income and net of tax credits, is estimated to be between 10 and 15 per cent lower than before R&D tax credits were introduced, according to the Centre for Business Research at Cambridge Judge Business School. The report said the government would struggle to meet its target for R&D spending to reach 2.4 per cent of gross domestic product by 2027 as a result. The R&D tax credit scheme, which either reduces corporation tax or generates a cash credit, has grown steadily since its introduction in 2000 and is now used by 60,000 companies a year.
But the report, published on Tuesday, pointed to Office for National Statistics data that show the impact of the tax credits on business investment in R&D has been “insignificant”. “The theory behind R&D tax credits, namely that a reduction in the cost of R&D will lead to an additional increase in a company’s R&D expenditure, is flawed,” it said. The report also questioned government claims that each £1 of R&D tax credits generates between £1.40 and £1.70 of additional R&D spending. “The Treasury’s R&D tax credit scheme has, by accident or oversight, become the government’s flagship industrial policy,” said the report’s author, David Connell, senior research associate at the Centre for Business Research. “But without the scheme stimulating significant additional business spending, it cannot bridge the huge gap between current levels of business R&D expenditure and the level required to deliver on the government’s overall target.” A further £500m of tax credit payments subsidises R&D undertaken outside the UK, according to the report.
The research comes as the Treasury has started a consultation on modernising the R&D tax relief schemes, which will consider all elements to ensure that reliefs “continue to be fit for purpose and deliver good value for money for the taxpayer”. The UK’s most recent estimate put overall R&D spending at 1.7 per cent of GDP in 2018, combining public sector with private spending, up only marginally from 1.6 per cent in 2000 and below the OECD average of 2.4 per cent. The report also argues that the Treasury’s £1.1bn-a-year Patent Box scheme, a lower rate of corporation tax to encourage commercialising intellectual property, has failed to deliver its objectives given profitable multinationals and other large companies have taken the vast majority of the benefits.
Credits Fail---AT: Disruptiveness---1AR
Disruptiveness doesn’t matter
W. Chan Kim and Renée Mauborgne 23, coauthors of Blue Ocean Strategy and Beyond Disruption: Innovate and Achieve Growth Without Displacing Industries, Companies, or Jobs, professors of strategy and management at INSEAD and codirectors of the INSEAD Blue Ocean Strategy Institute, May-June 2023, “Innovation Doesn’t Have to Be Disruptive,” Harvard Business Review, https://hbr.org/2023/05/innovation-doesnt-have-to-be-disruptive , RS
The Rising Importance of Nondisruptive Creation
Ever since the Nobel Prize–winning economist Milton Friedman introduced his theory of shareholder primacy, there has been a presumed trade-off between maximizing economic gain and social good. Friedman’s theory, which is at the heart of capitalism as we know it today, asserts that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” Social issues beyond that fall outside the proper scope of the enterprise.
Yet for all the economic benefits this approach has brought, it is increasingly being challenged as the world wakes up to the costly social effects that result from the pursuit of profit maximization. And the public is becoming increasingly vocal about them, demanding that corporations expand their mission beyond profit and consider the impact of their actions on local communities and society at large. The result is an increase in discussions about the need for a socially responsible form of capitalism. Nondisruptive creation speaks to this, not by compromising economic good but by innovating new markets without destruction.
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The influence of the fourth industrial revolution also underscores nondisruptive creation’s growing importance for the future. AI, smart machines, and robotics are on track to deliver previously unimaginable efficiencies, but they will do so by replacing an increasingly wide swath of existing human jobs. Studies show that smart machines are expected to displace about 20 million manufacturing jobs worldwide over the next decade, more than 1.5 million of them in the United States. Other studies predict that smart machines, robotics, artificial intelligence, blockchain technology, 3D printing, and automation will put 20% to 40% of existing jobs at risk over the coming decades, including a range of high-end jobs across most sectors, from medical to legal, finance, real estate, and journalism. And as recent advances show, AI is even capable of creating beautiful original art and music.
To absorb all the released human capital, new jobs will be needed—which brings us right back to the central driver of economic growth: market-creating innovation. The success of technology and the productivity it unleashes raise the premium on creativity and the establishment of new markets. The challenge for companies, governments, and society will be to create new jobs that don’t displace others. That is as much an economic imperative as it is a moral one—which is another reason why nondisruptive creation is about to become even more important. Microfinance has given nearly 140 million people loans to start microenterprises and be gainfully self-employed. Life coaching, another nondisruptive industry, is estimated to have created tens of thousands of new jobs. Environmental consulting has given rise to thousands of new jobs, and that number will no doubt grow as public concern mounts over environmental degradation. Nondisruptive creation is not the sole answer to the challenges we face; many other pieces of the puzzle are needed. But it should be part of any solution.
Identifying Nondisruptive Opportunities
So how can organizations go about finding and realizing opportunities for nondisruptive creation? To answer that question, we studied whether a pattern lies behind successful nondisruptive creations—and if so, what it looks like. Our aim was to codify the recurring thought processes and actions of nondisruptive creators so that other organizations could use them for maximum effect.
Three building blocks are key to nondisruptive creation: Identifying a nondisruptive opportunity, finding a way to unlock it, and securing the enablers needed to realize it in a high-value, low-cost way. In this article, because of space limitations, we focus on the first one. There are two main ways to identify a nondisruptive opportunity.
Address an existing but unexplored issue or problem. Nondisruptive markets are created by solving a brand-new problem or uncovering a brand-new opportunity beyond existing industry boundaries. That doesn’t necessarily mean that the problem or the opportunity suddenly popped up. It may have long existed but—importantly—has remained unexplored because it wasn’t seen as a problem to solve or an opportunity for creation. Sometimes people have consciously or unconsciously accepted it as simply “the way things are.” Sometimes a reputable organization or individuals may have tried long ago to address the issue and failed, so people regard it as essentially impossible. And sometimes it may be taken for granted and accepted because people have patched together some form of nonmarket solution to the problem—as women did before the creation of sanitary pads.
Take Square (now Block). Jim McKelvey and Jack Dorsey, the founders, s

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