Does Obama budget 'win the future'? Six ways he wants to boost innovation.

Over the past three weeks, President Obama has been hammering on one major domestic theme: "winning the future" by investing to make the economy more innovative and competitive.

On Monday, the president moved to put his budget money where his mouth is. Mr. Obama's proposed 2012 budget includes significant funding increases for scientific research and for educating young Americans in math and science.

His budget drew sharp criticism from Republicans, who say the best way to make America's economy more competitive is through deep spending cuts that rein in the size of government. Meanwhile, even supporters of an innovation agenda take issue with some of Obama's specific proposals – or argue that his plans should be even more ambitious.

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The White House concedes that its pitch represents an effort to set priorities against a backdrop of a big squeeze, with Obama proposing cuts in discretionary spending and Republicans seeking even bigger cuts.

The budget "puts the nation on a path to live within our means so we can invest in our future," the budget document says. "It targets scarce federal resources to the areas critical to winning the future: education, innovation, clean energy, and infrastructure."

Top priorities

Here are Obama's top innovation-related budget priorities:

• Funding scientific research. The 2012 budget includes $148 billion for R&D overall, with new money targeted at sectors (including clean energy, advanced manufacturing, and cyber-security) which are "most likely to directly contribute" to job creation.

• Promoting private-sector research. Obama calls for making the research and experimentation (R&E) tax credit for business permanent, to simplify it, and to expand the credit by 20 percent. The up-front cost of this boost for business: an estimated $4.6 billion in lost tax revenue in 2012, or $106 billion over the next decade.

• Improving the patent system. Obama proposes boosting the speed and quality of patent examinations, with a fee surcharge to better align application fees with processing costs.

• Boosting education. In addition to broader proposals regarding schools and universities, the budget allocates $100 million toward an Obama goal of preparing 100,000 new teachers in STEM (science, technology, engineering, and mathematics) over the next decade.

• Ramping up clean energy. Obama seeks to move on several fronts here. He would transform an existing $7,500 tax credit for electric vehicles into a rebate that will be available to all consumers immediately at the point of sale. He would lure manufacturing for renewable energy by extending tax credits and adding $5 billion in new ones. And he would add three "Energy Innovation Hubs" – which bring together top scientists to work on an important issue – to the three his administration has already created, with the new ones focusing on critical materials, batteries and energy storage, and new power-grid systems.

• Bringing wireless broadband nationwide. Obama calls wireless broadband connections an increasingly important part of the nation's economic infrastructure. He seeks to make such networks available nationwide, and to create a new public-safety network to improve first-responder communications during emergencies. Key funding would come from auctions to reallocate airwave spectrum.

Emphasis on scientific research

With these proposals, Obama is putting a clear emphasis on scientific research, which many economists welcome as a building block for future growth.

"This administration is moving innovation closer to the heart of our economic policy, where it needs to be," Robert Atkinson, an economist and president of the Information Technology and Innovation Foundation in Washington, writes in a recent statement.

But Obama's moves would not be dramatic in terms of the overall budget. For example, the $4.6 billion R&E tax credit would equal about one-tenth of 1 percent of federal spending in 2012, by Obama's plan. That's because so much of federal spending is locked in for mandatory programs like Medicare, Medicaid, Social Security, and interest on the debt.

Similarly, Obama calls for the National Science Foundation to get 13 percent more than in 2010 (the last budget Congress passed) to fund research at universities, businesses, and other institutions. That $1 billion gain is a lot of money, but it's almost invisible when viewed as a piece of the total budget.

Outside economists offer a mixture of skepticism and applause for Obama's priorities.

Many praise the idea of making the R&E tax credit permanent, to foster long-range investments by innovative businesses. By contrast, Congress has for years managed this tax credit from year to year, extending it amid lobbying (and campaign contributions) from business.

Mr. Atkinson lauds that effort, and the idea of expanding the R&E credit. He also calls for Obama to follow through on goals of making the US business tax code more competitive globally, to lure jobs that might otherwise flow to other nations.

Too much focus on green energy?

Michael Mandel, an economist at the Progressive Policy Institute, argues that Obama puts too much focus on green energy. His argument: The US has no clear lead over other nations in that sector, so the job-creating "bang for the buck" might not be great in that area.

Some economists like the idea, urged in the budget, of a $30 billion National Infrastructure Bank, which would provide loans and grants to help fund projects that can boost economic growth.

A $53 billion investment in high-speed rail is more controversial. The Obama budget doesn't put this six-year tab on its list of "innovation" proposals, but says the project will "create skilled manufacturing jobs that can't be outsourced."

A goal of the project would be to give 80 percent of Americans access to high-speed rail within 25 years. It would be a lot faster than current Amtrak trains, but skeptics question whether it does much for the economy.

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