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Merit Should Lure Funds for Research

June 02, 1985

The barrage of self-interest group attacks on the proposed tax reform is slowly starting, and "Congress Should Take Close Look at Tax Reform's Impact on Industry" (Viewpoints, April 28) presents a biased approach. Rather than examining the alternatives for promoting research, an endeavor that would be supported by almost everyone, Charles W. Missler implies that the change in the limited partnership "tax benefit" will cause the demise of entrepreneurial ventures. I disagree.

First, the fairness of the present tax system must be addressed since it is undoubtedly one of the primary considerations causing today's growing demands for tax reform. In this reference, Missler says about the R&D investor, "Most of his investment is written off, for it is 'at risk,' while his return is taxed not as ordinary income but rather as a capital gain, which bears a lower rate." If this investment "write-off" is allowed, the element of risk is minimized and the favored tax treatment on the return gives the appearance of an unwarranted reward. By the nature of these investments, the investor should experience a large return if the venture is successful. This in itself should be incentive enough to provide the sources for investments.

The net result of eliminating the tax favors would be that the partnerships would have to be sold on the merits of the research rather than on the apparent tax savings. It would, I believe, upgrade the caliber of the research projects, since these projects would become the sole basis of judgment regarding possible investments.

One subject not touched upon is the open-ended tax deductions that are allowed to exist because of these policies. The government is, by Missler's admission, clearly subsidizing research. How much research should be so subsidized? For the purpose of illustration let us assume that all investment capital was invested in research. How much loss of revenue would be incurred by the government? Would the success stories so outnumber the failures that the net effect would be of benefit to both investors and the government? The fact that more money is not now invested in this manner seems to suggest that that would not be the case. Rather, the national debt would increase even more. I agree that the government should provide incentives to stimulate research, but these should not be unlimited blank checks given to all researchers regardless of the merit of their research.

I can see the difficulties that might be encountered in bringing about these ideas. I can already hear some people saying "Aha, you want to set up a new government bureaucracy to administer research." I assure them that would be the last thing in my mind. The fact is that most knowledgeable people understand the importance of research. In the unlikely event that our sophisticated investors would not provide the capital required by the high-quality projects, then government should step into the picture. However, there must be a way to do this without relying on the tax system.

HAROLD G. WEISS

Huntington Beach

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