By: Paige Eaton

It probably doesn’t come as a surprise that funding spent on research and development (R & D) is at an all-time high in the United States, reaching over $499 billion during 2016. The United States ranks number 1 in research and development expenditures surpassing China by 15%.  The industries spending money on research and development widely varies, with manufacturing industries taking the lead in expenses and nonmanufacturing industries claiming the least of expenditures. Companies spending funds on R & D include as little as 5 employees to over 25,000 employees.

So where does all this funding come from? During 2015, it was recorded that business funding amounted to $355 billion and federal funding was estimated to be $113 billion. Research and development activities have been distributed between three categories: basic research occupying 13-18%, applied research consuming 19-23%, and experimental development between 61-65%. Federal funding encompasses the majority of basic level research, primarily funding for universities and other institutions of higher education, which conducts almost half of basic level research. Meanwhile, private businesses account for 52% of applied research funding and 82% of development funding according to a 2014 study.

Now that we know where most funding comes from, it is wise to figure out where the money was spent. Salaries and wages consist of one-third of R & D expenses, materials and supplies occupy another third, and the remaining third is capital spending.

The end goal for the billions of dollars spent in research and development varies based on the investing industry. It can be an increase in productivity, betterment to a product, or development in the health industry. But the benefit of R & D doesn’t have to stop there. The IRS developed a Research and Experiment (later changed to the Research and Development) tax credit during 1981 to create jobs and aide in the development of technology. The credit was temporary, being extended by Congress more than a dozen times until the Protecting Americans from Tax Hikes Act of 2015 made the R & D credit permanent. Check back in soon to see how the R & D tax credit can rejuvenate R & D funding for businesses.

Where do all these Research and Development Costs Go? (R & D Series Part II)