Device Tax Kills
The empirical findings suggest that the elasticities of R&D spending with respect to cash flow and corporate market value equal 0.58 and 0.31, respectively. Moreover, based upon these estimates, simulations show that the recently enacted excise tax on medical devices, taken alone, will reduce R&D spending by approximately $4 billion and thereby lead to a minimum loss of $20 billion worth of human life years over the first 10 years of its enactment.
Ugh. Governments promising efficiency, unconcerned with innovation.
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Penalizing R&D is a surefire way to stymie economic growth since technologicl innovation is the force that moves the economy forward.
A major weakeness is the arbitrary nature of the medical devise tax. High margin products have to pay the same tax (as a percent of selling price) as low-margin products. This gives an advantage to proprietary products with high mark-ups. Commodity producers could find their profit margin wiped away. A firm making huge profits would hardly notice the difference; a struggling firm suffering losses would be run out of business.
Spending cuts on R&D, that is like killing the goose that has been laying all the golden eggs.
It seems to me that folks in Washington aren’t familiar with the Cobb-Douglas production function – killing technology is the fastest way to kill an economy, faster than unemployment or even mass murder.
Don’t really understand the policymaking process here, and hopefully one day, with a better quantitative economic background, I’ll be able to analyze it more objectively — but it’ll probably still won’t make sense then. Too bad government isn’t objective like science ought to be.