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Posted at 03:04 PM ET, 01/02/2013

What the ‘fiscal cliff’ deal means for U.S. innovation

The not-so-grand bargain to avert the fiscal cliff has been struck.

The agreement, by most standards, may not be considered particularly inventive. And the process, a political slog, could also be seen by many as falling well shy of a creative, vibrant collaboration between the parties. But the deal is done, averting billions in steep spending cuts and tax hikes. The stock market rallied in the wake of the news, even as questions remain about the nation’s debt limit.

But what does the deal mean for the innovation economy in particular?

"It could have been worse,” said Robert Atkinson, president of the Information Technology and Innovation Foundation, citing postponement of sequestration, or the across-the-board budget cuts, as good news for the innovation economy. Extensions of an existing deferral of taxes on foreign income and the R&D tax credit were, said Atkinson, “generally good for tech companies.”Also, the extension of accelerated appreciation through the end of 2013 “should have a positive effect on spurring investment in new machinery and equipment,” he said.

Asked whether the deal was a win or a loss for innovators, Brookings senior fellow Karen Dynan said, “It was a win relative to going over the cliff, but it’s a loss relative to a situation where we got a ‘Grand Bargain.’”

“A better deal would be one that left us with more certainty over how we are going to address our long-term budget challenges. The current deal achieves far too little deficit reduction to prevent the debt-to-GDP ratio from rising.”

A package geared towards promoting innovation, said Dynan, would contain three things:deficit reduction, “tax reform aimed at making the system more transparent and efficient,” and “on the spending side, more money for infrastructure and education.”

As for the debt ceiling debate, Dynan warns that the crisis of confidence is really what stands to hurt the innovation economy the most. “Skeptics should take some time,” she said, “to refresh their memories about what happened in late July and early August 2011.”

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By  |  03:04 PM ET, 01/02/2013

 
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