Max Baucus resides soundly to the right of center on tax policy. He hasn't been willing to set aside the prejudices that grow within the Beltway favoring the high-income elite through tax subsidies for their particular kind of income, and so he has actually fought FOR (rather than against) reductions in estate taxes, reductions in capital gains taxes, reductions in taxes on multinational corporations, and other tax provisions extraordinarily favorable to the manager-owner "uber" class of the rich and superrich.
Given that background, it is not surprising that Baucus is pushing his own pro-wealth agenda in coordination with the right-wing Congressional fringe's ideological economic terrorism on deficit reduction (translate--benefit reduction for the middle class and poor; subsidy extension for the upper class and extraordinarily wealthy). So today, Bloomberg reports his stand at a Finance Committee hearing in support of the Baucus-Hatch bill to expand the credit for research and experimentation and make it permanent. Richard Rubin, Baucus Seeks Permanent Research Tax Credit to End 'Yo-Yo', Bloomberg.net (Sept. 20, 2011).
Baucus thinks we need to expand and make permanent this provision that is a particularly generous benefit for industries that are already paying low tax and rolling in cash (and often offshoring jobs), such as information technology companies and Big Pharma, because the credit "has been like a yo-yo, up and down, up and down."
The problems with the credit's supposedly acting as an incentive to domestic research are manifold. Research takes place over a period of years, not within a few months. Companies that need to do research to stay on the innovation edge and therefore stay competitive will do that research whether or not there is a credit--they would always get a deduction for the expenses of the research, so the credit is merely 'icing on the cake' giving a tax subsidy to businesses that happen to be more research intensive for research that they would do anyway. Except that the credit is available for much of what is really 'tweaking around the edges', not genuine research that advances the innovation ball. Much of that kind of basic research has been done at universities where academics are somewhat freer to explore ideas because they are interesting rather than because there is quick money waiting around a nearby bend. (I say somewhat freer because as the federal government and states get stingier with higher education funding for public universities, academics are pressed more and more to do "bespoke" applied research that gets corporate dollars to the campus and is rewarded most if it translates quickly to industry profits.) Furthermore, the credit has often been approved after the fact--when it couldn't possibly incentivize more research in the United States or elsewhere: in those cases, it serves as one more cog in the corporatist machine that provides extra low federal income tax rates to US multinationals and does essentially nothing to create more jobs in the US. Moreover, the R&D credit is a typical subsidy-generated catch-22: by favoring those industries that can most easily fudge research or claim something 'new' that is merely a slight deviation from existing items in order to extend intangible property rights like copyrights and patents, the R&D credit ultimately favors development of the very kind of property that is most easily offshored to subsidiaires in order to reduce companies' US taxation (while retaining actual ownership of the intellectual property and of the funds it generates). Finally, there's little research to show the effectiveness of the R&D credit in increasing the amount of research or creating more research jobs: I suspect if you compared federal direct spending on basic university research to the indirect tax expenditure for the R&D credit, you'd find that direct spending on basic research was multiple times more effective in funding the creation of new ideas and the creation of new US jobs (including many research assistants).
Right wing rhetoric about how capitalism is based on 'free markets' bites the dust when there is a chance for a government subsidy via a tax expenditure provision like the R&D credit, doesn't it. Baucus should quit catering to his wealthy donor/Big Business base and start acting like a real statesman on tax policy.
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