There is No Evidence that Maryland’s R&D or Biotechnology Tax Credits Work
Evaluations of Maryland business tax credits continue to show that the state’s investments are not working as legislators intended. A recent state-mandated evaluation of the research and development (R&D) tax credit and the biotechnology investment incentive tax credit (BIITC) found no evidence that either tax credit is benefitting Maryland. In addition, this spending comes at the expense of investment into other programs that would more effectively incentivize innovation and investment in technology.
The R&D tax credit mainly benefits large corporations
The goal of the R&D tax credit is to boost long-term economic growth in Maryland by promoting innovation. However, much more so than tax conditions, the presence of elite research universities and a well-educated, highly skilled workforce is more likely to influence research and innovation.
The design of Maryland’s R&D tax credit makes it even less likely to impact innovation in our state. Because it provides tax credits for a business’s total R&D expenditures, it is likely to give businesses windfall credits for R&D activities they would have engaged in regardless of the tax incentive. In addition, most of the businesses that receive it are large, multi-state corporations that already benefit from other state tax credits.
Since 2000, the R&D tax credit has cost Maryland $119 million and currently costs $12 million per year. Those funds would be put to better use by investing in STEM education to strengthen Maryland’s workforce, supporting research at our universities, or offering a more effectively designed tax credit to incentivize growing R&D activities of new and emerging companies.
The biotechnology investment incentive tax credit has not grown the industry
The BIITC is intended to support investments in early stage biotech firms and growth of the biotech industry in Maryland. However, data collected by the Department of Legislative Services was unable to show that the tax credit had increased investment in Maryland’s biotechnology industry or the number of active biotechnology firms operating in Maryland. The annual funding for the tax credit doubled to $12 million in 2015, but the number of qualifying investments increased by only 15% as a result.
Despite research that suggests that clustering biotechnology firms together is preferable for growth of the industry, the BIITC favors investment in firms that operate in Allegany, Dorchester, Garrett, or Somerset counties. Promoting economic growth in rural areas of Maryland is important, but other, more effective, programs exist to tackle economic development in those areas.
Ineffective tax credits are not a good investment for Maryland. Instead, Maryland should foster innovation and industry growth by investing in things that support a strong workforce, like good schools and vibrant communities, and the technological advancements of new and growing companies.
