The Treasury Department on Friday rejected the idea of lowering taxes on innovators who develop intellectual property in the United States, and said lower taxes for those people would lead to more “unfairness” in the tax code.
“[T]he innovation box comes up short as a desirable addition to the tax policy toolbox,” Assistant Secretary of Treasury for Tax Policy Mark Mazur wrote in a blog post.
Republicans and Democrats on the House Ways & Means Committee last year proposed lower taxes on income derived from innovation.
Supporters say that change, nicknamed the “innovation box,” is needed to “discourage foreign takeovers of American companies and to keep good-paying jobs in the United States.”
Supporters also say other countries are lowering taxes on income derived from innovation, and said doing the same thing in the U.S. would help focus research and innovation in the U.S. again.
But Mazur listed several reasons for opposing it. One is that it would be hard to implement fairly.
“[B]y providing potentially large tax cuts to some businesses but not others, it increases disparities across businesses and investment types, making the tax system less efficient and less fair,” he wrote. He also said it’s unfair that the “innovation box” would only help innovators with profitable inventions.
“Further, an innovation box would exacerbate inefficiencies and unfairness in the tax treatment of different businesses and economic sectors,” he added. “For example, taxpayers with similar amounts of innovative activity may receive wildly different amounts of income associated with those innovations, due to marketing, the ability to exploit market power, or the shifting preferences of consumers.”
“So, a firm with a greater ability to exploit a market will receive a greater tax reward, exacerbating the tendency toward a ‘winner take all’ economy,” he wrote.
Instead of an innovation box, the Treasury Department prefers a research and development tax credit, instead of the “innovation box.”
