The Bright Coast

Progressive Thoughts from San Diego Alums on Law, Politics, and Culture

R&D Tax Credit

Posted by brightcoast on September 24, 2008

There is one thing that I can’t understand. If we have such a huge budget deficit, and people need the government’s help now more than ever, why are both candidates preaching about giving back tax credits? It seems obvious to me that this is only going to lead to a larger deficit, which will in turn, due to the laws of economics, lead to the government having to raise taxes to recoup their losses. So why, I ask, doesn’t the government or the president, just leave things the way that they are? I don’t buy that giving tax refunds is going to lead to a rejuvenated economy either, I believe we learned that lesson several years ago.

However, I do think that this is a good way to encourage R&D. Many candidates, or at least democratic ones for certain, point out how new prescription drug prices are skyrocketing, and how reforming the healthcare system would change that. However, this is prima facie untrue. There are two main reasons why new drugs cost so much: 1) R&D costs (and all marketing costs, etc.); and perhaps more obviously 2) patents. By having a patent system which grants the pharmaceutical company a limited monopoly on the drug, the government is effectively sanctioning their excessive prices.

The tax credit is one way of reimbursing companies to create an incentive to continue to invent. However, so long as the patent system is the primary way of rewarding innovation, I doubt any  healthcare reform will have more than a de minimis impact on the prescription drug industry.

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