Thursday, April 9, 2009

Why taxes and subsidies are bad

Here is Dr. Rodgers' Testimony before House Committee on Science, Space and Technology

Dr. Rodgers, who start up Cypress with himself and an old computer, is at the time the CEO of Cypress (maker of the best super computer equipments) and an investor.

I highly advise you read the original testimony. Here are some of the good parts.

1. Against raise tax on those rich people who got a "free ride" in the 1980s:
So please allow me to reintroduce myself: I am an excess of the 1980s. Based on my ownership stake in Cypress, I am one of the people who, in the President's words, "profited most from the uneven prosperity of the last decade." I became a paper millionaire in the 1980s--eight times over, in fact.

How did I profit? I started a company in Silicon Valley. I obtained stock in that company when it had one employee (me) and one used computer. I worked with that company for a decade--sixteen hours a day, six days a week--to help get it where it is today.

And where is it? Over its ten-year history, Cypress has generated over $1 billion in cumulative revenue, made over $160 billion in profits on which we paid $60 million in taxes, created 1,500 jobs which paid cumulative salaries of nearly $500 million, on which our employees paid further taxes of $150 million. We have shipped cumulative exports worth $300 million. We have generated a market value of $500 million for our shareholders and employees--all of whom own stock in the company.

If that is an "excess of the 1980s," let's have more!

2. Against government subsidies (At the time the government are considering giving tax payer money to high tech companies including his):

Or think about Europe. Amazingly, we still have "experts" who want us to emulate Europe's alphabet soup of technology consortiums such as JESSI, their equivalent of the U.S. chip consortium Sematech. JESSI showered billions on the European semiconductor industry. It also "rationalized" the industry by allocating certain market segments to various companies. Siemens became the DRAM company for Europe--and has since gone out of the business. Philips became the SRAM company for Europe--and has since gone out of that business.

After inadvertently weakening its chip industry, Europe then established 14% import duties on foreign chips--the next logical step of desperate government policy. The import duty had precisely the effect we might expect: It raised the price of components to the European computer industry and virtually wiped it out as well. Today, there is no European chip industry or computer industry to speak of--thanks to the role of government programs like JESSI. European taxpayers gave up part of their income to wipe out two critical industries! We can't afford to emulate such failed experiments.

I have to say this is an eye opener. Just excellent.


Michael said...

Neither of these are actual arguments against higher taxes for the rich though.

For instance - higher taxes don't apply to people doing startups.

Wow Panda said...

I only quoted a very small part of Dr Rodger's original, the follow quote from the same testimonial will answer your question:

"A tax increase of $1 million means that Cypress will employ ten fewer Ph.D. technologists than it would otherwise--technologists that would be working on high-performance chips for data superhighways and supercomputers."