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Innovation tax break gaining some support in U.S. Congress
August 3, 2012 / 7:50 PM / 5 years ago

Innovation tax break gaining some support in U.S. Congress

WASHINGTON, Aug 3 (Reuters) - A proposed corporate tax break known as the ‘patent box’ is winning some bipartisan support in the U.S. Congress and, with the promise that it could spur jobs and innovation, it is in the policy mix as lawmakers target full-scale tax reform in 2013.

The idea is to give companies a tax break , and a sizable one, on profits derived from patented products that originated with research and development done in the United States.

Several European Union countries have embraced the patent box and the United Kingdom is set to adopt it next year.

A bipartisan pair of U.S. lawmakers this week introduced a patent box bill with a 10 percent tax for qualifying income.

The idea has its skeptics, both on its merits and viability. Critics say another tax break for business would lead to a race to the bottom in tax rates and potentially cut revenues.

Several experts at a recent meeting in Washington said a U.S. patent box, named for a box printed on tax return forms that companies would check to claim the break, might be too complex to implement.

“The main challenge in designing a patent box regime is to isolate income attributable to patents,” said Peter Merrill, an economist at PricewaterhouseCoopers and former chief economist at the congressional Joint Committee on Taxation.

He said the evidence links patent box policies to increased patent activity, but not necessarily to job growth.

In the United States, both Democrats and Republicans widely back a broad revamp of the U.S. tax code, likely including a cut in the corporate tax rate, which is high by global standards.

Movement of American jobs abroad is a hot political issue amid a sluggish economy and a tight presidential race.

President Barack Obama and some fellow Democrats back special tax breaks to encourage companies to move jobs back to the United States, while rival Republican presidential hopeful Mitt Romney says Obama’s policies have hurt the economy.

TAX REFORM MIX

Comprehensive tax reform, last accomplished in 1986 under President Ronald Reagan, is a daunting project expected to take years. Backers are pushing the patent box as a step forward.

“We should start by mixing the old, Americans’ might in manufacturing, with the new, America’s might in innovation,” said Democratic Representative Allyson Schwartz, who has offered a patent box bill with House Republican Charles Boustany.

Any congressional action on the Schwartz-Boustany bill, or a parallel measure in the Senate, is unlikely before 2013.

A patent box proposal is among options in a corporate tax reform blueprint released last year by Republican Representative David Camp, chairman of the tax-writing Ways and Means Committee in the House of Representatives.

“While they haven’t endorsed it, they are looking at it as a viable option,” said Boustany spokesman Neal Patel.

The U.K.’s new system led drug giant GlaxoSmithKline Plc to promise more jobs in Britain. In March the company said it would invest $792 million in a biotech plant there. Glaxo has cited the country’s new patent box as a lure.

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