Tax Policy in Competitive Markets

Posted on April 3, 2008
Filed Under Public Policy |

Billary has proposed a set of tax proposals aimed at encouraging U.S. job creation and stemming the tide of job losses to offshore manufacturing. I certainly don’t have a problem with expanding tax credits for R&D but the problem that exists with all of these programs today, including the much talked about R&D tax credit, is that the accounting and reporting requirements are so steep that very few startups actually take advantage of them.

I have never been involved with a startup that has applied for the R&D tax credit, but considering that startups typically don’t pay income taxes (lose money, no taxes) I never understood the point of linking this tax credit with startup job creation.

Big companies are a different animal, they have both the income structure and the ability to apply and track the tax credit. But at the end of the day if you want to encourage the creation of highly skilled R&D jobs in the U.S. you would propose the one thing that is blindingly obvious, increase the number of visa (H-1, F-1, J-1) that we allocate annually.

Another measure I would propose is the opposite of the two tax code sections that she wants to end, deferred taxes on repatriation of profits and repricing rules for intercompany transfers. Stated another way, create a tax policy that becomes a draw for foreign companies to locate in the U.S., focusing on the payroll, state and local taxes instead. The U.S. is already at an advantage with the weak dollar basically encouraging foreign companies to set up shop here, let’s make it even more attractive. BTW, these two tax “loopholes” that she refers to have been a favored target for Democrats for 3 decades, so this is nothing new insofar as the proposal is concerned.

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