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9. What Should Government Do To Encourage Scientific Research and Development?
What, then, should the government do, if anything, to encourage research and development? We have repeatedly outlined the recommended principles of government policy: to avoid interfering positively in the free market or in scientific inquiry, and confine itself to changing the provisions of its own rules and laws that hamper free scientific research. The latter category, however, leaves room for far more government action than one might think.
Some of the recommended policies which flow from these basic principles have already been outlined:
(1) Shift military research and development from governments to private contracts.
(2) Pay market wages for scientists used by government or government-contracts.
(3) Relax civil service red tape, to provide merit payment and promotions.
(4) Remove undue security regulations and red tape on government-contracted scientific work.
(5) Remove Atomic Energy Commission regulations and subsidies of the atomic energy industry.
(6) Encourage state governments to shift from truly regressive, “progressive education” in the public schools to solid educations in subject matter, to repeal compulsory attendance, and educationist requirements that restrict the supply of good teachers, and to substitute merit payment for the uniformities of civil service regulation.
(7) Encourage state governments to repeal rate regulation of the public industry.
But there is another broad category of worthy government action on which we have not touched: tax exemptions. Taxes cripple free energies, productive work and investment. The best way for government to encourage free activity in any area is to remove its own tax burdens on that area. Contrary to common belief, a tax exemption is not simply equivalent to a government subsidy. For a subsidy mulcts taxpayers in order to give a special grant to the favored party. It thereby adds to the ratio of government activity in the economy, distorts productive resources, and multiples the dangers of government control and repression. A tax exemption, or any other type of tax reduction, on the other hand, reduces the ratio of government to private action; it frees private energies and allows them to develop unhampered; it reduces the danger of government control and distortion of the economy. It is a step toward the free market and the free society, just as a government subsidy is a step away from the free society.
Another point about tax exemption: it avoids many of the problems entailed by government subsidy in deciding which particular firms and locations should obtain the grant. Should government concentrate its funds on a few large universities or medical schools, for example, or should tax funds be distributed pro-rata to each of the various states, or should they be used to help the poor states catch up to the wealthy?54 There is no rational way to decide this problem, and thus end aggravating conflicts between different groups in society. These conflicts and problems can be avoided by simply lowering taxes, and allowing free individuals and the free market to decide where and how they will allocate their funds.
Here are some examples of the many constructive things government can do, via tax exemptions and reductions, to encourage scientific progress in America:
(1) Tax Credits to business corporations for contributions to colleges and universities for scientific research. This will stimulate basic research in its proper place: in colleges and universities. (Also recommended by National Science Foundation)
(2) Tax Credits to Individuals on income tax for contributions to scientific research in colleges and universities. (Recommended by National Science Foundation)
(3) Making Tax Deductible, Expenses by Business in training scientists at universities. (Recommended by National Science Foundation)
(4) Making Tax Deductible, Contributions by Business to individual scientific research.
(5) Making Educational Expenses (for science or other higher education) Tax Deductible on Parents’ income taxes.
(6) Permitting individual scientists and investors to Average Their Incomes over many years, for Income tax purposes.
(7) Lowering Corporation Income Tax rates, to permit more investment in research and development.
(8) Lowering Individual Income Taxes, especially in the Upper Brackets, to permit greater investment of private risk capital in new inventions.
(9) Permitting Amortization of Equipment at any time pattern the owner wishes, thus allowing rapid amortization of new, innovatory projects.
(10) Lowering, or Repealing, Federal and State Inheritance Taxes, to permit much more private risk capital in new inventions.
(11) Lowering the Capital Gains Tax on Individuals—to stimulate research and development of inventions, which can be sold as capital assets for capital gains.
(12) Lowering the Capital Gains Tax on Corporations—to permit corporations to try to pile up new inventions in order to increase their assets, and therefore increase the total market value of their securities.
- 54. Thus, see Medical Research: A Mid Century Survey, p. 145.