House pair roll out tax cut for innovation

A bipartisan pair of House members announced Wednesday that they want to give multinational companies a 10 percent tax rate on income derived from intellectual properties. 

Reps. Charles Boustany (R-La.) and Richard Neal (D-Mass.) on Wednesday rolled out a draft of their long-awaited “innovation box,” which is expected to be a central component of a broader House overhaul of the U.S.’s international tax structure. Some Republicans and Democrats have shown an interest in marrying that sort of tax revamp with a highway bill.

{mosads}Boustany and Neal’s innovation box would allow a wide range of property – including patents, inventions, formulas, designs and computer software – to get the lower 10 percent rate.

The two lawmakers, both senior members of the tax-writing Ways and Means Committee, argued that the incentive was needed to keep jobs and investment in prized industries – like the high tech and pharmaceutical sectors – in the U.S.

“Our tax code has erected barriers for innovators, forcing them to move overseas to create these exciting new products that are changing the way we live and work every day,” Boustany said. “We want that activity here in the United States.”

Neal added that the U.S. was losing its status as world leader in innovation. “One of the main culprits is our broken and outdated tax code, which remains a rotary phone in a smart phone world,” Neal said.

The U.S.’s top corporate rate is 35 percent, though the average effective rate in the high tech and pharmaceutical sectors is often much lower.

Under Boustany and Neal’s proposal, multinational companies would only get the lower 10 percent rate on some of their profits. Companies would compute profits for the box by multiplying profits from intellectual property by the fraction of its budget spent on research and development in the U.S.

As a further carrot, companies could bring intellectual property currently stashed in lower-tax countries back to the U.S. without paying any taxes.

Supporters of an innovation box say it’s necessary to keep up with countries like the United Kingdom, Ireland, China and the Netherlands, who are all using some variation of the idea.

And while Democrats have railed against the offshore tax deals known as inversions, which are largely paper transactions, proponents of the innovation box insist that not implementing some sort of tax cut on intellectual property would push more jobs offshore.

That’s because other countries using a patent or innovation box are requiring companies to move both research jobs and property to get the lower rate.

Ways and Means Chairman Paul Ryan (R-Wis.) was quick to praise the innovation box proposal, saying it “can help us stem the tide and protect good American jobs.” On the other side of the Capitol, Sens. Rob Portman (R-Ohio) and Chuck Schumer (D-N.Y.) have also proposed making an innovation box a central plank in an international tax revamp.

Still, there are significant hurdles for the proposal, especially this fall.

For starters, the proposal is likely to cost billions and billions of dollars on its own, after giving the lower tax rate to a wide range of intellectual property.

Plus, Senate Majority Leader Mitch McConnell has repeatedly brushed aside the idea of linking highways and tax reform. Tax reform proponents have said the lure of a highway deal could be a major incentive for lawmakers to consider the international tax revamp.

And the Obama administration, which has long called for using revenues from a tax revamp to fund a six-year highway deal, has so far shown little enthusiasm for an innovation box.