In recent years, Research and Development (R&D) has grown dramatically in the USA: investments have given rise to many technologies that have become part of everyday life, such as the internet and smartphones, and essential resources for health, such as new vaccines and therapies. All these innovations fueled economic and military power and propelled the country to its status as a global superpower.

The panorama of scientific funding – from its current base, presented in the United States through Vannevar Bush, in his report called The Endless Frontier, in 1945 – has evolved, changing over time. Vannevar’s model, which presented a scientific strategy based on a partnership between government, academic institutions, and the private sector, remains in operation, with numerous successes in the development of new technologies and means of production.

The results, of course, come from the long journey taken over these almost 80 years.The scientific-financial scenario has changed since its first model, today encompassing a complex ecosystem that continues to include the three initial areas, in an intrinsic system of institutions.
Considering this, we can make an overview of recent years and highlight some points about the changes involving this topic and their developments – in addition to latest trends in R&D.

Summary:

• Investment in Research and Development (R&D) in the US has grown significantly, driving technological innovations and essential resources for healthcare. This demonstrates an ongoing commitment to scientific and technological advancement.
• US leadership in gross domestic investment in R&D, with strong annual growth. Still, China is currently closing the gap, experiencing accelerating growth, with an average growth rate of 10.6 per year over the past decade.
• Acceleration of business investment in R&D, representing 73% of total investment in R&D in the US, with a significant focus on applied research and experimental development.
  • Importance of Higher Education in financing and producing research, representing about 12% of total R&D funding, also being the largest performer of basic science R&D in the US (48%), most of it spent on life sciences.
• Federal trends in R&D funding, with a significant increase in post-pandemic funding (fiscal years 2020 and 2021), on behalf of regular agency and supplemental funding to enable research and development a response.
• Federal agencies, such as the Department of Defense, the Department of Health and Human Services, and NASA, represent a significant portion of federal R&D funding.

The United States leads the world in gross R&D domestic investment

The United States led the world ranking of national investment in R&D, with around US$700 billion in 2020, according to a study by National Science Foundation. At the same time, China is also accelerating its R&D investments in the last ten years, near to close the current gap between the two countries, growing at an average rate of 10.6% per year, almost twice that of the US.
Investment in R&D has also a robust growth rate over the last 10 years, with an average annual increase of $19,2 billion between 2010-2016, followed by $32.3 billion in 2017, $50.8 billion in 2018 and $62 billion in 2019. This pattern of sustained annual increases since 2010 is primarily due to consistently higher levels of corporate R&D performance, which have been close to 80% or more of the total annual increase.

Business x Federal Investment

Over the last decade, business investment in R&D has accelerated at a pace that accounted for around 5.8% annually, reaching $517 billion dollars in 2020. In the business area, a large part of R&D activities focuses on the final stages of development, and currently 73% of American investments in R&D are financed by the business sector, which enjoys some tax benefits to encourage investments.
On the other hand, federal funding fell by 3%, from 12% in 2010 to 9% in 2019, and has remained stable over the last decade, remaining the second largest source of funding. In the same year, federal government funds represented $133.8 billion, or 20% of total US R&D .

Federal Investment

According to the Joint Committee on Taxation, the cost of government tax support for R&D is estimated to have risen from $9.5 billion in 2000 to $22.1 billion 18 years later, in 2018. The Organisation for Economic Cooperation and Development (OECD) points out that 91% of the total tax subsidy credit is awarded to firms with gross receipts in excess of $50 million.
The R&D Tax Credit, despite having existed since 1981, only became permanent in 2015. It is calculated based on the change in a firm’s R&D expenses over a defined period, and not on its gross expenses, reducing the cost of US R&D expenses by an average of 7-10%.

Performance

In terms of performance, the Business sector stands the most prominent, exhibiting a predominant strength in the R&D scenario, with an annual gain between 69% and 75% in the two decades that span 2000-2019. It is also possible to report the $498.2 billion that make up part of the $669.9 billion raised nationally for total R&D in 2019.
The business sector also shows a 76% increase in applied research, and a 42% in basic research, both in the last 10 years. In addition, the sector also finances 87% of all experimental development. It’s important to notice that this includes research paid by the company itself, other companies, and/or US federal and non-federal governments.
The Higher Education also have a significant role among R&D, with around 12% of total, followed by 9% performed by the government. However, when we separate the R&D processes, these positions are reversed, and the sector becomes the largest producer of basic research, with 48%, while business occupies second place, with 32%. Of this research, slightly more than half is financed by the federal government, although companies have been the largest investors in other areas.

Federal Trends

Over the years, one of the most essential functions of the federal government has been to provide resources for R&D to be conducted by federal and non-federal entities, such as companies, academic institutions, and others. Currently, there are 33 federal institutions, including agencies and departments, dedicated to financing and encouraging innovation. As the main ones, we can mention the Department of Defense (DOD), the Department of Health and Human Services (HHS, which includes the National Institutes of Health [NIH]), the Department of Energy (DOE), the National Aeronautics and Space Administration (NASA), the National Science Foundation (NSF), the Department of Agriculture (USDA), the Department of Commerce (DOC), the Department of Veterans Affairs (VA), and the Department of Transportation (DOT), with these nine agencies representing 98% of total federal R&D and plant R&D in 2020.

In the fiscal year (fy) 2016, federal agencies reported R&D expenditures using a narrow definition of development, consistent with international standards, adopted by the Office of Management and Budget (OMB), which covered all agencies but, in practice, had effects only on some of them. Following this, after some time in decline, a trend of annual funding increases returned in fiscal years 2017-2021, now starting from a lower baseline; and in 2019, the reported US$147 billion in R&D obligations returned to the previous 2010 peak, which was then surpassed by the US$174 billion in 2020 and preliminary $185 billion in 2021. The reason for the large annual increases in federal funding in these fiscal years can be attributed to the post-COVID-19 pandemic Congressional response, which promoted regular agency and supplemental funding to bolster R&D.

Regarding the breakdown between types of R&D, the largest share of federal funding in FY 2020 was for experimental development (49%); Next came applied research (26%) and then basic research (25%). These proportions vary widely, however, from agency to agency, reflecting differences in agencies missions and priorities.

How can we help you?

We specialize in helping companies finance innovation and secure funding for their Research and Development (R&D) activities through the comprehensive management of R&D Tax Credits. With more than 1,800 qualified employees, counting on specialists from different fields, we are committed to supporting companies of all sizes and in all sectors of activities. With our expertise, FI Group specialists can support your company in identifying qualified activities.

Sources:

https://ncses.nsf.gov/pubs/nsb20225/conclusion
https://www.economicstrategygroup.org/publication/seven-recent-developments/