Political Economy Quote of the Day

In short, what the economy could use is a debate over medium-term entitlement and tax changes. Instead what it's getting is a debate over near-term non-security discretionary spending.

From Tom Gallagher via Brad DeLong.

I also think we need a debate over the medium-term defense budget and note that while some entitlements are out of whack, that Social Security is not one of them. Medicare and Medicaid are the principal out of control entitlement programs. But, at any rate, it is clear that Republicans Congress and the President aren't addressing the real causes of the deficit, and that the voters don't really care.

A case in point, the R&D tax credit, a dreadfully complex part of our tax code that costs about $7 billion a year.

I was dismayed, for example, to learn today that the President's budget proposed a 20% increase in the research and development tax credit which he also proposes to make permanent. I was once a fan of it (who doesn't like new technology), but increasingly clear evidence from media accounts makes clear that it is a key factor driving the low effective corporate tax rates of some of the nation's biggest businesses, and an important cause of disparities across industries in effective corporate tax rates, is the R&D tax credit.

The R&D tax credit is at the heart of what is wrong with our corporate income tax; it is not a solution to be touted as a success and expanded. The immense tax expenditure of the R&D tax credit would be better spent as grant money than on the research ventures it is devoted to now. We already have a market driven government incentive for research and development. It's called intellectual property rights.

The R&D that needs government subsidies in a world with strong intellectual property rights is the kind that is not now and will not in the short run be profitable, like basic research and medicines that help those who can't afford to pay for them.