New York, D.C. and Title II

I can see the headlines now: “ISPs tell Wall Street and Washington mostly, but not quite exactly, the same thing about Title II.” Doesn’t quite have the right ring to it…

Instead, Brian Fung at the Washington Post has been reporting a number of stories attempting to show that network operators are telling Wall Street and Washington two entirely different stories and musing on some potential policy implications of such possible discrepancies.

Yesterday afternoon, Bob Quinn with AT&T expressed his surprise at the line of stories. I must say I agree with Mr. Quinn – Fung is really stretching his interpretations. Here I suggest we go to the primary sources: The transcripts of interviews with executives from Comcast and Time Warner Cable that Mr. Quinn reproduces are quite up-front with their thinking on Title II. They clearly state that the Title II framework is bad policy and bad for investment. Nobody in D.C. has claimed that the world will melt under Title II. But, let’s be clear, to the extent any of these statements can be read to say carriers can live under Title II with forbearance done properly (a … Read the rest


What’s the difference between an engineer and a half-priced TV?

President Obama’s recently announced immigration reforms, which in addition to offering deportation amnesty allow foreign graduates of U.S. universities to stay and work longer, are a step in the right direction for U.S. companies desperate for high-skilled workers with science, technology, engineering, and mathematics (STEM) skills. However, despite overwhelming evidence of a STEM shortage, Hal Salzman, a Research Associate with the Economic Policy Institute,once again claims that workers are available if companies are only willing to pay for them, stating “[Companies] may not be able to find [high-skilled workers] at the price they want. But I’m not sure that qualifies as a shortage, any more than my not being able to find a half-priced TV.”

After reading this, I was able to come up with a few reasons why engineers are not comparable to half-priced TVs, why this analogy falls apart, and one very important similarity which Salzman’s argument overlooks.

First, while the hypothetical TV was half-priced, companies are already paying top dollar for skilled workers. STEM workers earn twice the national average, with a median wage of $78,270 in 2012.

Second, TVs, as consumer goods, are usually not essential. … Read the rest


Preempting International Harmony: The New British Tax on Overseas Profits

Earlier this month, the United Kingdom announced a new “diverted profits” tax on the profits of foreign companies operating in the United Kingdom. The government’s parliamentary majority will allow the government to implement the tax with few delays. Doing so would be a mistake, however. Although the new tax tries to address a real problem with the implementation of corporate taxes in the modern economy, a new international process led by the OECD already exists to deal with exactly this kind of issue. The effort recently issued a series of major reports and is scheduled to make final recommendations next year. The British government should delay implementation of its new tax so that it can act within a multilateral context designed to deal with the larger issues involved.

The issue of tax competition, like that of inversions, has become confused recently, with both legitimate and illegitimate activity getting thrown into the same category. Despite the unease of some countries, there is nothing illegitimate about a sovereign country lowering its corporate tax rate in order to attract foreign companies. It is immaterial whether in doing so they reduce the size of … Read the rest


New Evidence from Canada: Tax Policy Does Affect Research Spending

In a new study published by the National Bureau of Economic Research, three economists study the effect of a recent change in Canada’s research and development (R&D) tax credit on subsequent spending by small companies. The question is especially interesting because small firms may lack sophisticated tax advisors, earn few profits and thus have a lower tax liability against which to deduct tax credits, and have a harder time financing the fixed costs that come with additional research.

In “Do Tax Credits Affect R&D Expenditures for Small Firms? Evidence from Canada,” the authors find that firms that qualified for a larger tax credit did spend more on R&D in the following years compared to firms of similar income whose tax situation did not change. They also find evidence that the refundable nature of the credit made a significant difference.

According to the paper, Canadian tax law allows all countries to deduct 100 percent of research performed in Canada from their taxable income. It also provides all firms with a non-refundable tax credit of 20 percent of qualifying expenditures. However, for small- and medium-size companies (determined by the previous … Read the rest


How the United States outpaced Japan in Software Innovation

In the 1980s, Japan was America’s chief rival in most technology industries. Not only could Japanese firms compete in advanced sectors against U.S. firms, they had an innovation advantage.  In fact, research and design (R&D) investments in Japan were 40 percent more productive in producing IT patents than were R&D investments in the United States, implying that Japanese firms were better able to make advancements into developing better good, products, and processes.

However, in the 1990s this trend reversed. U.S. firms, while less innovative in hardware manufacturing, developed an innovation advantage in software, with R&D spending yielding 60 percent more patents per dollar spent in the United States than in Japan.  A recent paper by Ashish Arora, Lee G. Branstette, and Matej Drev explains why.

Software represented a new frontier for an industry that had previously focused on producing hardware such as semiconductor, televisions, computers, and other advanced machinery. High-tech firms adjusted rapidly to the new challenge, and innovations quickly built on previous innovations, and an IT patent filed in 2002 was 10 times more likely to cite a software patent than one filed in 1992.

Advanced technology industries in … Read the rest