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Taxes, innovation and life science jobs
In response to several recent columns, I received emails exhorting me to "stop complaining and propose something." I agree that we're exhausted from defining the problem and it's time to define solutions. With the election coming up in 2012, let's go! I am disappointed in both Republicans and Democrats, often for the same reason. In an election cycle, they are like Michigan and Ohio State fans arguing before a big game.
Once on the field, they play by the same rules and the proposals made beforehand quickly fade away. Candidates don't change Washington; Washington changes them. After the inauguration, it's quickly back to business as usual. This really matters today because time is short.
My party is the Pragmatic People's Party (PPP). Our slogan is "What works—no magic!" We have a few central fiscal themes. First, the federal government is the people, not something separate from the people. We need it for very few purposes, including shared defense, shared infrastructure (physical, electrical, environmental), international relations and regulating commerce (patents, safety). The federal government should stay far away from limiting social choices, beyond allowing those choices to be made.
Second, it makes perfect sense to support these common interests with user fees and income, sales/excise and property taxes.
Third, our party, unique among the others, insists that taxes should rarely, if ever, be a means to influence human behavior.
Fourth, we, the PPP, also accept the principle that if you are more fortunate, you should contribute more to the common good in linear proportion to your success, not more and surely not less. Fortune consists of various combinations of luck and effort. Neither should be considered unfair. Fairness is a concept for meteorologists and elementary school students. Adults know life is unfair, and we get over it. Our platform specifically rejects the idea that taxes should appear to accelerate with success and then be countered with incentives and then countered again (alternative minimum tax) when those special incentives are perceived by some to be used too much. Huh? This is a riddle wrapped in a mystery inside an enigma. Speaking of Churchill, we agree "that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."
It's time to trim the rose bushes at the Internal Revenue Service. Its complexities are a large drain on our productivity as a nation. Some calculate that it costs 30 percent of tax revenues collected to both calculate what is due and then scheme to find ways to avoid it. That's more than $400 billion annually, a great potential source for United Way, your local symphony or even my life science startup.
Fifth, our party opposes corporate income tax and the corporate component of social welfare taxes. These indirect tax channels from individuals (employees, shareholders, customers) provide opportunity for political and business shenanigans that are not transparent. Following this tenet, life science companies will not be arguing for R&D tax credits. Depreciation rates need not be different for taxes versus book accounting. There will be no credit unions. There will be no income tax preferences for drilling for oil or building a plant in a special real estate zone. Real estate and property tax abatement are development tools that would remain for local government. No company will be motivated to hide cash overseas for tax reasons. All organizations should be profitable including churches, museums, universities, families and governments. To be nonprofit is a curse to be overcome, not a badge to be proudly worn.
Sixth, revenue would come to the federal government primarily from the income tax directly on individuals with few—if any—deductions. There also would be user fees for parks, highways, airways, patents, FDA and the like. Charities would be supported from the heart. To collect adequate revenue without deductions, the rates will be modest for all.
Seventh, Sarbanes-Oxley (SOX, or the Full Employment Act for Attorneys and Accountants of 2002) should be reversed (NOSOX, or the Unemployment Act for Attorneys and Accountants of 2012). We must slow down responding to the question, "Why didn't the government do something about that?" We ARE the government. A few of us will behave very badly no matter what. We have long proven that rules to prevent the malfeasance of a few often do great damage to the majority and little to those self-aggrandizing slimes who are a side effect of sexual conjugation. The Enron and Tyco boards screwed up. Now the rest of us pay. Shutting down the IPO route to investment liquidity was equivalent to taking milk from babies and venture capital from startups.
Eighth, as we have proven time and again, reducing capital gains tax rates increases capital gains tax revenues. Life science investing is a long-term activity that must be driven by hope for more than just change, but for gold. Should we tax those gains at all? I'm thinking perhaps not. Whatever gains there are will be put to work and thereby soon enough provide tax revenue from sales taxes, property taxes and income taxes. Growth catalyzes tax revenue. Rates can do the opposite.
A lot of cash is frozen today by an uncertain upside and repeated short-term plans that purport to create jobs, but simply move money from one private economy job to another or to the public sector. Capital senses irrational behavior and hides. Consider the tax on medical device revenues proposed to begin in 2013. How does this make healthcare more affordable any more than raising the price of milk makes milk more affordable? How does reducing social security taxes for a brief time encourage long-term hiring and solve the economic problems of entitlements?
Prune the IRS rose bushes now. We can lower tax rates, simplify the process, improve transparency and raise government revenues while freeing capital to get back to work. That's where jobs will come from. We in life sciences neither need, nor deserve any special help. Freedom now! We'll get it done the day we see a future of opportunity, not the threat of taking it away. Paying taxes is the result of success. I'd love to pay more to do my share.