Thursday, October 16, 2008

We need to tax intellectual property income with a higher rate

The dollar bills of the United States, are marked with the abbreviated prayer of "In God We Trust"

A more complete version of it would be "We trust in God to keep politicians from printing more dollars than what the economy can back, or, if not, to give the U.S. taxpayer the willingness and the ability to pay the taxes it takes". A similar prayer applies equally to all other countries.

Now even though the private sector will bear most of the initial losses of the financial crisis, this one will end up being extremely costly for the governments and certainly, in many cases, exceed their current fiscal capacity. In this respect some of its costs should be covered by higher taxes, since if not these will be paid through inflation, the tax on the poor.

Society has for many decades not analyzed any new taxing schemes which could better fit the new global realities and therefore interfere as little as possible with the recovery of the economy. It may be appropriate to start thinking about that. Any new tax proposal though must be legitimized on the basis of justice and rationality. In this regard I am circulating some ideas for discussion and the following is one of these.

The tax on the profits obtained from the monopolies created by intellectual property rights.

Most or perhaps all intellectual property rights are awarded to whoever runs the last leg of a relay that has been run with ingenuity, creativity and strenuous efforts, by generations of humans. Previous runners allow the last one to cross the finish line victoriously, to raise a finished idea as his, although he did not necessarily initiate it.

The particularity of this relay is that anyone who expects to be running as the last leg cannot be completely sure of what it entails. Sometimes running it can be easy, and sometimes it may require millions in equipment and others to fund the efforts. Society, in order to encourage ingenuity, creativity and the effort required of all needed to make the world progress, just decided to award the runner crossing the finish line, the trophy of an intellectual property right.

The problematic part of this social arrangement is that all intellectual property rights create a right to a monopoly and as is exercised with little or no regulation, restriction or supervision, meaning it can be subject to exploitation.

Because all intellectual property rights granted by the society imposes an obligation on it to defend that right, in many ways, which costs a lot, the question remains whether it would not have been better to use those resources for other purposes, such as funding others to run the last leg on behalf of the society.

I cannot find any logic or justice charge to tax a company who has been granted a monopoly intellectual property right, for something to which previous generations have contributed and in which defense Society needs to invest resources, with the same tax rate that applies to a company that competes in the market naked without any kind of protection.

And so I proposed to study the gains generated by the exploitation of intellectual property rights to pay a tax on additional profits, say 20 %. These revenues can be used to reimburse the society for the costs of defending the intellectual property, and to help fund those other runners in relays of humanity aimed at developing essential goods that can be useful for everyone.