"Patent Box" tax incentive for more patents

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Lawmakers Embrace Patent Tax Breaks: U.S. considering ‘patent box’ approach similar to U.K. in piecemeal approach to reform. John D. McKinnon. May 5, 2015.

Leading congressional tax writers in both parties are getting behind a major new tax break for corporate innovation as part of their continuing quest to identify ways to make the U.S. business-friendlier.

In its basic form, a patent box imposes a special and ultralow tax rate on business income that is derived from intellectual property. The U.K.’s recently-adopted patent box, for example, has a 10% rate for patent-related profits, roughly half the country’s overall corporate rate.

Techdirt on the UK version in 2012. I’ve not noticed coverage of the recent US push from digital rights venues.

This reform is almost perfectly counter to WIFO’s theory of change: increasing the profits of and thus constituency for freedom infringing industries, abetting a bad future.

Although special tax treatment is a losing game overall, this post would be incomplete if it did not point out the possibility of using tax policy to favor commons-based production. A New York State Senate bill would do this in a very minor way.

Naked Capitalism has a 2014 critique as a vehicle for tax gamesmanship; their embedded evaluation of IP is of interest here:

While the social and economic utility narrative is weaker for some forms of intellectual property (trademarks, for example, or copyright), it is stronger in the case of patents, which are associated – at least in the minds of policy-makers and the public – with technology-driven economic growth and advancements in medical science.

For those worried about tax competition, weak states, and resulting increased inequality, the end game seems obvious: abolish IP, tax land. The sustainable way toward the former is through commons-based production and commons-favoring policy. The latter is for other sites.

Apparently this is still a live proposal in the U.S., called an “innovation box” at the link. Letter to the editor by Scott Locke in the Wall Street Journal:

…it would not be a sufficiently large incentive to devote more money to research and development. Instead, it would be a windfall to those companies and do nothing for startup and early-stage companies with innovative, big-picture ideas.

Additionally, mixing the tax code and the patent regime will only encourage a new subspecialty of tax lawyers and accountants. One can imagine the problems of the IRS using its agents to determine whether products that companies say are in the patent box actually are in that box. One can also imagine the incredibly expensive endeavor of patent litigation becoming even more costly as patent defendants accuse patent holders of fraud on the IRS.

The last sentence could be a positive. But the net would be another ratchet of the number of people who find their jobs and wealth are in some way derived from patents and the patent system and who will confuse that system with furthering innovation and promote its further complexity and defend it from any reform that promotes the outcomes of freedom, equality, and security.

I missed in July http://waysandmeans.house.gov/the-innovation-box-what-it-is-and-why-we-need-it/ and http://waysandmeans.house.gov/ryan-welcomes-boustany-neal-innovation-box-discussion-draft/

On September 29 a group to lobby for lower taxes on IP rents in the US was announced “American Innovation Matters” whose members Cisco, Boeing, Intel, McGraw Hill Financial, Oracle, and Facebook:

The effort comes in response to tax changes occurring around the world as countries become increasingly aggressive in trying to tax a larger share of U.S. business global income while at the same time, offering businesses incentives to relocate their R&D resources and jobs into their countries.

Innovation box policies, which provide businesses with lower tax rates on income generated from intellectual property, are increasingly being adopted by foreign countries as a way to attract investment and jobs.

Fits in several list of ways intellectual property harms security boxes.