How Trump Can Use His Tax Cut To Drain The Federal Research Swamp

How Trump Can Use His Tax Cut To Drain The Federal Research Swamp

If Trump wants to reduce the corporate income tax, he should cut at least some of the $147 billion the government spends on research grants.
Daniel Oliver
By

President Trump has made it reasonably clear that he is not concerned about the deficit, though he hasn’t gotten around yet to appropriating Ronald Reagan’s quip that the deficit is big enough to look after itself. As if thumbing his nose at the deficit, Trump plans to reduce the corporate income tax to 15 percent. The respected and nonpartisan Tax Foundation estimates that, even scored dynamically, the new rate will reduce federal revenue by $1.54 trillion over the next decade, or an average of about $154 billion each year. Even in Washington, that’s serious money.

Like the deficit, the corporate tax revenue shortfall also may be big enough to look after itself, but that’s no reason not to give it some help. And help is only a research grant—or 10,000 research grants—away. The federal government gave out an estimated $147 billion in research grants in 2016: $79 billion for defense, $68 billion for non-defense.

So let’s just cancel all the research grants. The net loss to the federal treasury from the corporate tax cut becomes manageable. Corporations can spend however much of their tax savings on research they want to, and in whatever ways they deem useful.

Research Grants Don’t Usually Create Quality Research

Defense mavens would not be happy. They would say it is unlikely that the country’s defense needs could be met in such a situation. Not wishing to pick a fight with people who spend billions for bombs, let’s just eliminate, for now, the spending on non-defense research.

In 1982, the Department of Education sought to run an actual competition for the “research” funds it was supposed to award on a competitive basis to “labs” and “centers” (as they were called) that did research on educational issues. The labs and centers would submit proposals, and the department would fund the best of them. When Congress got wind of the scheme to go back to competitive bidding, it attached a rider to a bill that required the department to continue to give the funds to the same organizations that had received them for years. It became embarrassingly apparent (if Congress is capable of being embarrassed) that the grants had nothing whatsoever to do with quality research. They were pure payola from the congressmen to their constituents.

Who doubts the situation is much the same with the $68 billion of non-defense research grants that will be dispensed this year? And who doubts that privately directed research would be more useful than government-funded and controlled research?

New Technology Usually Spurs Scientific Discovery

One doubter is L. Rafael Reif, who writes in the Wall Street Journal that “the qualities that make industry good at applied research and development — an appetite for immediate commercialization, a laser focus on consumer demand, an obligation to maximize short-term returns, and a proprietary attitude about information — make industry a bad fit for supporting basic scientific research.” Mr. Reif is the president of MIT, and readers with a laser focus on full disclosure will want to know how much money MIT gets from the federal government, a datum not vouchsafed to us by Mr. Reif.

Serious doubters are urged to read “The Evolution of Everything: How New Ideas Emerge” by Matt Ridley. He quotes Terence Kealey, a biochemist turned economist, who says that when you examine the history of innovation, you find that scientific breakthroughs are the results—not the causes—of technological change. Ridley writes,

It is no accident that astronomy blossomed in the wake of the age of exploration. The steam engine owed almost nothing to the science of thermodynamics, but the science of thermodynamics owed almost everything to the steam engine. The flowering of chemistry in the late nineteenth and early twentieth centuries was driven by the needs of dye makers. The discovery of the structure of DNA depended heavily on X-ray crystallography of biological molecules, a technique developed in the wool industry to try to improve textiles.

The Private Sector Innovates Best On Its Own

Adam Smith noticed the same flow, reporting in “The Wealth of Nations” that “a great part of the machines made use of in those manufactures … were originally the inventions of common workmen.”

Ridley writes, “In the late nineteenth and early twentieth centuries, Britain and the United States made huge contributions to science with negligible public funding, while German and France, with hefty public funding, achieved no greater results in science or economics.”

“In 2003,” Ridley reports, “the OECD [Organization for Economic Co-operation and Development] published a paper on ‘sources of growth’ in OECD countries between 1971 and 1998, finding to its explicit surprise that whereas privately funded research and development stimulated economic growth, publicly funded research had no economic impact whatsoever. None.”

Mr. Reif, and no doubt others, will point to discoveries that resulted from federally funded projects. But given the amount of taxpayer money—billions and billions of dollars—granted by the federal government over many decades, we should be surprised and appalled if it had produced nothing.

Donald Trump is the perfect change agent for draining the research swamp. And the perfect time is now, when he’s cutting the corporate income tax—and cutting it by more than 57 percent. Draining the research swamp immediately, thereby maximizing the long-term returns, is a breakthrough government could justly take pride in producing.

Daniel Oliver is chairman of the board of Education and Research Institute and senior director of White House Writers Group in Washington DC. In addition to serving as chairman of the Federal Trade Commission under President Ronald Reagan, he was executive editor and subsequently chairman of the board of National Review.

Copyright © 2017 The Federalist, a wholly independent division of FDRLST Media, All Rights Reserved.

comments powered by Disqus