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Who needs R&D tax credits?
October 2012
by Peter T. Kissinger  |  Email the author

Who needs R&D tax credits? No one! As the year finishes out, I foresee more sausage-making on taxes and reducing federal expenses to avoid a sequester event. It won't be pretty, and perhaps Congress will just put the whole thing off for a few months. When I am sequestered, my goal is to be isolated from other people to avoid disturbances, allowing for quiet contemplation.  
It is on such occasions that I think about this column. Our current troubles stem from a widely embraced entitlement attitude that is wrapped in the utopian concept of fairness.  Taking has surpassed making in our collective consciousness. This thinking evolved over 50 years, but has been rapidly accelerating of late.  
We all take because others take, and it's about getting our fair share, or preferably, more. As making goes down and taking goes up, the pool we take from gets smaller and smaller. Proceeding along these lines has resulted in an unsustainable machine, decelerating from the frictions regulating business while complicating our tax system.  The word cliff has been used appropriately, and We The People (WTP) are heading for it fast.  
Scientists fit the pattern nicely. We want grants and we want tax credits as incentives that we surely deserve for life sciences, climate research, alternative energy sources, nanotechnology and … After all, science is such a tiny part of government expenditures. 
Balderdash. To avoid the fiscal cliff and climb over the mountain of debt will require several decades. We will not get there until we moderate the entitlement mentality and return to being more makers than takers. The principles are well established by experiments completed in multiple countries over centuries, and the message is very clear. Government will have to focus, as it once did, on doing fewer things well.
The private sector will have to focus on investment, innovation and growth. Business must stop its own "working the system" with that game we call crony capitalism. Large firms get away with this by threats ("We'll move our headquarters. We'll close our factories."). These tantrums frequently engender a deal ("Here is your tax concession."). These temptations would go away with a one-size-fits-all tax system focused on individuals.
No one with a brain makes an R&D decision based on tax credits. We make those decisions to try for a competitive advantage. If we don't achieve that advantage, we shouldn't expect to be partially reimbursed for the effort just to have our butts protected in a plea for fairness. It likewise is insane to tax the revenues of medical device companies, irrespective of their profitability.
Is there a psychiatrist in the house? It makes as little sense to tax business income as it does to offer tax credits for wind, biofuels or R&D. Business taxes are taxes on employees, customers and shareholders. WTP must raise revenue for those few things we need our federal government to do for the common good, among them paying down our severe debt. The best way to do that is with minimum friction from credits, deductions, preferences and political donations. Broadening the base of individuals who pay (and businesses if they must), reducing the rates they pay and simplifying the paperwork has been overwhelmingly recommended by every bipartisan group who has seriously studied the problem. It is time to just do it. Science and technology based companies, energy firms included, should neither be punished nor rewarded more than all the rest.   
We now enter the time for giving thanks and enjoying the shortest days of the year with traditional decorations, songs, feasts and hope for a new year, one with the unluckiest sobriquet of the new century, 2013. Let's defy that label, declare an armistice between political parties and actually fix things for the long term.  
WTP are unemployed because capital is unemployed. Capital is unemployed because it foresees an unreliable future for returns. Allow capital to do its work, and our economy would recover very quickly. We could start paying down the debt with restrained spending with increased tax revenue. There is no alternative if we accept survival as the preferred option. We will not survive if we remain takers all. Enjoy the holidays, the purest of these being Thanksgiving. It's better to make than to take.
Peter T. Kissinger is professor of chemistry at Purdue University, chairman emeritus of BASi and a director of Chembio Diagnostics, Phlebotics and Prosolia.             



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