Review of R&D Funding by Sector
Research and Development funding throughout the United States has historically come from 5 distinct sectors. These include the federal government, state governments, businesses, academia, and nonprofit organizations. The composition of funding from these sectors has changed over the years as R&D has shifted from a primarily federal activity to a commonplace component of individual businesses. To see a detailed breakdown of R&D funding compositions and performance in 2019, see the Congressional Research Service report.
The federal and business sectors dominated the funding, accounting for more than 90% of R&D funding since 1955. In 1964, federal funding reached its peak, accounting for 88.8% of R&D expenditures on its own. From this point on, business funding began to rise and overtake federal funding as the business sector experienced a boom in innovation and self-funded R&D endeavors. By 2019, the business sector accounted for 70.7% of the U.S. R&D expenditures on its own.
Character of R&D
There are 3 unique types of R&D. Total estimated U.S. R&D expenditures in 2019 (the most recent year for which data are available) were $656.0 billion. Of this amount, $107.8 billion (16.4%) was for basic research, $124.8 billion (19.0%) was for applied research, and $423.4 billion (64.5%) was for development.
Basic Research: experimental or theoretical work which aims to acquire new knowledge of the underlying foundations of phenomena. These often have no particular application or use in view.
Applied Research: Original investigations undertaken to acquire new knowledge and with a specific and practical objective.
Development: Systematic work which draws on knowledge gained from research and practical experience. This ultimately produces new knowledge directed to producing new or improved products or processes.
Federally Funded R&D
Federal R&D funding grew from $3.5 billion in 1955 to $138.9 billion in 2019 (in current dollars). This growth was not consistent over the years, as the nation saw a drop in funding between 2011-2014 with an $8.6 billion decline in funding. Similar drops were seen between 1987 and 1994. In more recent years, there has been an effort to increase this funding, getting innovation back on track and supporting the investment into R&D.
Federal funding accounts for the largest share of basic research. The federal government performs some of the research it funds, but also funds research performed by business, universities and colleges, and other organizations.
Business Funded R&D
This sector has seen growth in R&D funding nearly every year since 1955, growing from $2.2 billion to $463.7 billion in 2019. The rate of growth has slowed down in recent years, reaching the beginning of a plateau. This continuous increase is a direct result of the benefits of investing in R&D. When a company commits $1 to their own R&D practices they often see a hefty return on investment.
The business sector accounts for 55% of applied research and 85.5% of development. This is largely due to the greater ROI on these research types, allowing businesses to advance their own objectives and expand their stake in the industry.
Are you conducting research and development activities? Did you know your development work could be eligible for the R&D Tax Credit and you can receive up to 14% back on your expenses? Even if your development isn’t successful your work may still qualify for R&D credits (i.e. you don’t need to have a patent to qualify). To find out more, please contact a Swanson Reed R&D Specialist today or check out our free online eligibility test.
Who We Are:
Swanson Reed is one of the U.S.’ largest Specialist R&D tax advisory firms. We manage all facets of the R&D tax credit program, from claim preparation and audit compliance to claim disputes.
Swanson Reed regularly hosts free webinars and provides free IRS CE and CPE credits for CPAs. For more information please visit us at www.swansonreed.com/webinars or contact your usual Swanson Reed representative.
