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TRENDS | INNOVATION / GARY CHAPMAN

What Dole's Tax Cuts Would Mean to R & D

September 02, 1996|GARY CHAPMAN | Gary Chapman is director of the 21st Century Project at the University of Texas at Austin. He can be reached at gary.chapman@mail.utexas.edu

In March of 1982, Bob Dole gave a speech to the U.S. Chamber of Commerce. He told the audience a "good news-bad news" joke: "The good news," Dole said, "is that a bus loaded with supply-siders went over a cliff. The bad news is that there were three empty seats."

Fourteen years later, Dole is not only on the supply-side bus--he's driving it. He and Jack Kemp have promised a half-trillion-dollar tax cut over six years if they are elected to the White House.

If we're interested in the potential future of high technology and innovation in the U.S., we should review what happened during the Reagan era as a guide to what could happen again in the late 1990s.

Dole has promised to cut taxes by an amount double that proposed by his own party over the last two years while at the same time protecting Social Security and Medicare and raising defense spending dramatically.

This exact set of policies turned the United States from the world's largest creditor nation in the 1970s to the world's largest debtor nation in a mere five years. And what did it do to technological development in the U.S.? To finance tax cuts and the spending spree on the military, the Reagan administration turned to other countries for loans.

Clyde Prestowitz Jr., trade advisor in the Bush administration and also a former Reagan administration official, recalled last week in the New York Times: "As money flooded in from overseas, the dollar skyrocketed, making much of American business completely uncompetitive. The trade deficit vaulted to $150 billion as industries like those that produced semiconductors, disk drives and cellular phones moved offshore while others, like those that made flat panel displays [which are found in every laptop computer], largely ceased to exist in the United States."

In the early 1980s, high-tech leaders saw this handwriting on the wall. They worried that what happened to steel and autos in the '70s could happen to high tech. Several key high-tech executives lobbied the Reagan administration to start taking this issue seriously.

Reagan resorted to one of his favorite devices for diverting political heat: the blue-ribbon, bipartisan study panel. His administration assembled the President's Commission on Industrial Competitiveness, headed by the then-president of Hewlett-Packard Co., John Young, a Reagan supporter.

The Young Commission, as it came to be known, was an exclusive group of the captains of industry. After about 18 months of study, this panel produced a report, in 1985, which was turned over to the White House. Reagan's supply-side zealots promptly threw it in the trash.

The report was possibly the first from a modern group of industrialists to say straightforwardly that the federal government spends too much money on defense research and development. The report called for a federal department of science and technology--an unlikely prospect in an administration publicly committed to shutting down federal agencies.

The commission pleaded with the White House to take steps to avert a loss of technological leadership to Japan, Germany and other European countries, which were investing more money, as a share of gross domestic product, in advanced civilian technologies, especially in those all-important areas of process control and semiconductors.

The White House dismissal of the commission's hard work reportedly angered Young so much that he started his own organization, the Council on Competitiveness, which has been far and away the most effective high-tech lobbying group ever since. Many of the council's recommendations have found their way into Clinton administration policies and proposals, and Young himself, a lifelong Republican, co-chairs President Clinton's National Science and Technology Council.

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With supply-side economics back on the table in 1996, we're facing these same old debates once again.

The American Assn. for the Advancement of Science estimated last year that the budget cuts proposed by the Republicans in Congress--about half those of Dole's new proposal--would cut federal R&D spending by about a third over seven years. Dole's tax cut would, according to experts, cut federal agency budgets by an average of 37% over six years, in addition to the cuts already agreed to by Clinton in order to balance the budget.

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Because several federal agencies that fund advanced R&D are obligated by law to perform a certain range of functions, R&D is likely to take a larger share of funding cuts than the estimated 37%.

So, for example, the Energy Department has already announced that its entire research program would be wiped out by the Dole plan. No more research on renewable energy, conservation, alternatives to fossil fuels, etc. Our energy future would be secured the old fashioned way--by military might.

Under a Dole-Kemp administration, our most talented engineers and scientists would go back to work on Rube Goldberg schemes such as "Star Wars" and whatever else struck a general's fancy. And the economic plan itself is likely to chase even more high-tech industries overseas because of higher deficits, interest rates, dollar value and the sheer negligence of the White House.

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