Against the Research and Development Tax Credit
By Arnold Kling
Amar Bhide (WSJ, subscription) makes a good case that it is just corporate welfare.
Big companies with large R&D budgets, unsurprisingly, favor the proposal. But it’s a bad idea. Tax credits for R&D don’t encourage the broad-based innovation that is crucial for widespread prosperity.
At this blog, I have been arguing that we are in a Garett Jones economy, in which employees are hired to build long-term capabilities. In some sense, the vast majority of employees are doing R&D. The best way to get more R&D would be to cut the corporate income tax rate. The corporate income tax has been described as a swiss cheese where the holes are more important that the cheese.
As Megan McArdle has argued, the economy would be better off if there no corporate income tax altogether. Instead, the combination of high rates and lots of holes yields relatively little revenue. It does, however, maximize the value of K street lobbyists.