Since World War II, technology-driven firms have raised our living standards and cemented the primacy of U.S. economic power, and the importance of technological innovation shows no signs of receding. As the world emerges from the COVID-induced recession of 2020 through 2021, America will face new challenges, such as low secular levels of productivity growth, the rise of a China increasingly at odds with Western economies, and an increasing resolve to devote resources to address income inequality and climate change. In this environment, policymakers will have to make important decisions to ensure the United States maintains both the political and economic conditions that enable innovation in this country.

This report explains how American innovation has traditionally thrived because of sound policy decisions at the federal level. It then discusses several influences on the future growth of digital innovation in the United States. The report concludes by advocating several policy solutions that will help ensure that American leadership in digital innovation continues. Possible policy responses include expanding U.S. tech talent, expanding the Research and Experimentation (R&E) Tax Credit for small businesses, increasing federal spending on applied technology research, increasing access to capital for disadvantaged small business owners, ending accredited investor limits on “private placement” investments in private businesses, and reducing barriers to international data flow and digital commerce.