From the Rock to the White House

Daniel
Daniel MacEachern
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MUN prof gratified tax incentive research being used to support Obama proposal

Memorial University accounting professor Jeffrey Pittman’s 2004 paper has been cited in a tax reform proposal by U.S. President Barack Obama. — Photo by Daniel MacEachern/The Telegram

When Jeffrey Pittman found out his decade-old research on tax breaks was being cited by U.S. President Barack Obama in a new tax reform proposal, he thought of his father-in-law.

While the Memorial University accounting professor falls more on the Democrat side of the U.S. political spectrum, his father-in-law’s more of a Ronald Reagan or George Bush (senior or junior) man.

“We get along really well, so every time we go over to his house, we always talk about politics: he’ll say ‘Obama did this wrong,’ ‘Obama did that wrong,’ ‘George Bush did all these good things,’” he said. “So when he got wind of this — my wife called and told him — I’ve been milking it ever since.”

Pittman’s 2004 paper, “A Cross-National Comparison of R&D Expenditure Decisions: Tax Incentives and Financial Constraints,” is about four or five different things, he said, but it’s the data on tax credits for companies for research and development spending that caught the eye of the White House. Pittman’s research found that for every dollar in U.S. tax credit for a company’s spending on research and development, that company invests almost three dollars of investment in R&D, which Pittman called “really good bang for the buck.”

Pittman found a similar effect in Canada, but with a different tax regime, it was less pronounced; his research indicated that a dollar in R&D tax credit here resulted in $1.30 in research and development investment.

 “(Obama) wants to design a system that encourages investment without being expensive,” he said. “If you’re the government here, you’re looking at this and saying, ‘Well, if I give these firms this incentive, how much is this going to cost me, and what do I get?’”

Pittman says he realizes that his research isn’t being used to guide U.S. economic policy, but to support the president’s plans.

“I’m under no illusions that President Obama’s down there saying, ‘Now, I’m not sure what to do with taxes in the United States,’ and then goes out and bases his stuff on mine. What he does is he has his advisers, I’m sure, who construct these plans … and they advise him to use Plans X, Y and Z, then they go out and try to find some stuff like this that actually maps into what they’re saying.”

Still, he’s gratified that his research is getting some use in government proposals, and he’s interested to see how things play out with Obama’s tax reforms, with the need to spark business investment balanced against the possible political unpopularity of giving corporations tax breaks.

“He’s trading off trying to be fiscally responsible, because as you know the United States now they have a lot of debt. They’ve come up with this tax plan that’s very expensive, so they want to do it in a cheap way,” he said. “They can’t come up with this tax plan that just gives tax breaks to everyone, because they don’t have the cash. So that’s on one side, and on the other side, they want to invest more in R and D, so that’s the friction there: trading off costs, upside versus downside.”

Promoting research and development makes sense, said Pittman, in that new products help more than just the company that comes up with it. He uses the iPad as an example: not only does Apple sell a lot, but it makes money for related industries, such as retailers and software developers.

Pittman said he’s glad his work sparked some interest at such a high level, but that’s not why he does it.

“My wife and kids were thrilled, but I keep it all in context. It’s not a big deal. But it’s still nice.”

 

dmaceachern@thetelegram.com

Twitter: TelegramDaniel

Organizations: Apple

Geographic location: United States, Canada

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  • David
    March 07, 2012 - 13:07

    If someone wants information on the efficacy tax breaks and government programs in the modern western world, Newfoundland is perfect (and Cuba, but that's got geopolitical hair ion it). A decades-old, virtually uncontaminated petri dish for widely spread and far-reaching state welfare programs. And highly interpretable results to show for it, too.

  • Townie
    March 07, 2012 - 08:43

    Now all we need to determine is if there is value to the "research". If the companies had not spent any money on research, would they be in business? If the money was to be spent anyway, then in fact this was a waste of tax dollars. I would guess that in the majority of cases the tax breaks only went to company profits.