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To: Oceander
Good post. I agree with everything except your position on the R&D tax credit.

It has been demonstrated empirically that corporate R&D has large spillover effects not captured by the corporation funding it. As a result, without some subsidy, corporations will tend to underinvest in R&D. The tax credit is one way of correcting this problem.

In some sense, we do have a revenue problem, in that we don't have sufficient economic growth. Economic growth, in turn, is mostly driven by innovation. Hence creating incentives for innovation, such as with the R&D tax credit, should be at the top of the conservative agenda.

Of course, there are other ways to consider as well.

44 posted on 07/06/2011 2:11:36 PM PDT by curiosity
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To: curiosity

Without getting into too much of a discussion right now, I googled around a bit, and while there are any number of papers that discuss the subject, very few of them are really grounded in rigorous examinations of the overall net effect of using R&D tax credits, and the results seem to be all over a substantial portion of the map, so to speak, depending on which measurement methodology is chosen.

In particular, the assertions of the so-called “special” nature of R&D expenditures and the claims that here, more so than in any other area of economic endeavour, R&D producers are qualitatively less capable of capturing the economic benfits of their R&D work seem to me to be more conclusions in search of an argument than arguments that justify the R&D credit.

Finally, one paper I came across - an OECD study - pointed out that two Scandivian countries (I think Sweden and Norway) had substantial R&D being done even though they did not provide a credit or other form of subsidy for R&D work; the OECD paper did rather obliquely refer to the fact that these two countries also had rather low corporate income tax rates. That suggests that a tax credit may not, in fact, be an efficient way of incentivizing R&D work.

Finally, I did not come across any dicussions about whether or not all R&D work was equally useful and beneficial to society. It strikes me that part of the analysis of the net economic benefits of R&D credits would have to consider the extent to which the credit encourages specious R&D “work” that ought not to have been done in the first place. Instead, the papers I came across all seem to accept as a postulate the belief that R&D is an absolute good.

So, while I acknowledge your point, and there are indeed studies of that sort out there, I am as of yet not fully convinced that the distortions and costs imposed by the R&D credit do not outweigh the benefits thereof.


54 posted on 07/06/2011 3:03:53 PM PDT by Oceander (The phrase "good enough for government work" is not meant as a compliment)
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