Taxes

Experts React to Obama’s Corporate Tax Proposal

The Washington Post
White House released its proposed principles for overhauling the corporate tax code — bringing the rate down to 28 percent, establishing a minimum tax, and expanding credits for R&D and manufacturing.

ITIF Urges More Emphasis on Competitiveness in Corporate Tax Reform

(WASHINGTON) - In response to President Obama's corporate tax reform framework announced today, ITIF president Rob Atkinson made the following comment:

"It is a no-brainer that we need to overhaul corporate taxes. It is unfathomable that the United States has the second highest statutory and among the highest effective corporate tax rate in the world (even if the administration data suggest that our effective tax rate is on par with other nations). So the Obama Administration deserves credit for taking this on. Read more »

Congress should pass legislation that authorizes states to require out-of-state sellers to collect and remit sales taxes without imposing any undue burden on these sellers in order to equalize online and "brick-and-mortar" retailers.

Congress should allow states to require out-of-state sellers to collect sales tax, but it should only grant this authority under a framework that ensures that states create and maintain a fair and simple tax system that does not unduly burden out-of-state sellers. States rightly argue that tax laws need to evolve to allow them to require out-of-state sellers without nexus to collect and remit taxes on Internet sales to state residents. Neither Internet retailers nor brick-and-mortar retailers should receive preferential tax treatment.

Create a Fair and Simple Tax for E-Commerce

February 21, 2012
| Reports

Three pieces of legislation were introduced in Congress in 2011 to authorize states to require out-of-state retailers, including online sellers, to collect and remit sales tax. In this report, ITIF Senior Analyst Daniel Castro argues that Congress should find a balance that allows states to collect these taxes without imposing a burden on out-of-state retailers. He proposes three principles—fairness, simplicity and parity—that should guide the development of federal legislation and offers specific guidance on how such legislation should be crafted.

U.S. Industry Frets Over Impact Of Obama's Proposed Tax Policies

NASDAQ
Technology and pharmaceutical companies could also fare worse under Obama's proposed policies than the current system, since their overseas earnings would likely generate higher taxes.

Congress should simplify the corporate tax code while expanding provisions that incentivize investments in R&D, workforce training, and capital equipment and machinery.

Congress should simplify the corporate tax code while expanding provisions that incentivize investments in R&D, workforce training, and capital equipment and machinery. In particular, Congress should transform the Alternative Simplified Credit for R&D into an American Investment Tax Credit that allows expenditures in excess of 50 percent of base calculation on R&D, workforce training, and capital expenditures to qualify for a tax credit of 20 percent. However, Congress should make companies’ ability to receive the full 20 percent credit contingent on some portion of resulting production occurring in the United States. In addition, Congress should expand the collaborative R&D tax credit to cover more sectors beyond energy.

ITIF Testimony Before California Assembly Committee on Tax Policy and the High-tech Sector

December 5, 2011
| Testimony and Filings

In testimony before the California Assembly Committee on Revenue & Taxation, ITIF president Rob Atkinson urged state lawmakers to take steps to reform and expand tax incentives for innovation. Specifically, he recommended the state’s R&D tax credit be harmonized with the federal Alternative Simplified Credit and proposed revisions to the state’s basic research tax credit. He also urged the adoption of a “patent box” that allows profits from innovation to be taxed at a lower rate in order to drive job creation in California. Using tax policies such as these would help California harness the potential of its significant innovation infrastructure and entrepreneurial culture as well as compete with other states and countries at the cutting edge of innovation.

AGREE Act Aptly Named but More Bipartisan Accord Needed on Innovation

November 28, 2011
| Blogs & Op-eds

From time to time, there is a glimmer of hope for bipartisanship on innovation from Congress.The passage of the Patent reform act this year was one example. The American Growth, Recovery, Empowerment and Entrepreneurship (AGREE) Act, sponsored by Sens. Chris Coons (D-DE) and Marco Rubio (R-FL) is another. It is a package of practical actions to encourage and empower American innovators and job creators by focusing on taxes, trade, talent and technology, which ITIF regards as the columns of a solid economy recovery strategy.

Patent Boxes: Innovation in Tax Policy and Tax Policy for Innovation

October 4, 2011
| Reports
This report explains a tax device known as a patent box is being adopted by many countries seeking to enhance their competitiveness and why it would be a good policy for the United State to implement. A patent box significantly reduces the corporate tax rate on revenue from qualifying IP, based in part on the extent to which corresponding R&D and production is conducted domestically. The report survey the experience other countries have had with patent boxes and explains that a special, low rate would provide firms with a much stronger incentive not only to innovate but also to produce in the United States.

Download FAQs about Patent Boxes (PDF)

An effective corporate tax system reflects current economic realities. As such, the U.S. corporate tax system is in need of reform, for it reflects economic realities of a generation ago. Today, the U.S. economy faces intense global competition for economic advantage, particularly in innovation-based, higher wage industries. Moreover, the economy is based more on innovation and intellectual property (IP). IP is also more mobile, as companies can perform R&D and patent in countries around the world. Therefore, nations that hope to grow and attract innovation-based business establishments need tax policies that promote both the conduct of research and its commercialization.

Toward that end, a number of countries recently have adopted or expanded R&D tax incentives as well as developed new tax incentives to spur the commercialization of that R&D. These incentives or “patent boxes” (so-called because there is a box to tick on the tax form) allow corporate income from the sale of patented products to be taxed at a lower rate than other income. Eight nations (seven in Europe) have enacted patent box regimes that incentivize firms to patent or produce other related innovations. And a ninth, the UK, is set to put in place the incentive in 2013.

Proponents of patent boxes argue that they increase country competitiveness not only by spurring firms to invest more in innovation but also by providing a more competitive corporate tax climate for increasingly innovation-based firms. Skeptics claim that patent boxes do not actually address market failure because firms already have all the incentives they need to commercialize innovation in the marketplace.

This report seeks to inform the debate on whether patent boxes can help promote R&D and commercialization and if a patent box is appropriate for the United States. It articulates two economic rationales for why the United States should follow our European and Asian competitors and institute a patent box system. First, a patent box reduces the financial risk involved in innovation, better matching firm rewards with societal benefits, including the creation of high-wage jobs. If a patent box is designed in a way that links the incentive to the conduct of R&D and production of the patented product in the United States, it would go even further in spurring the creation and location of more innovation-based jobs in the United States. Second, a patent box would lower the effective corporate tax rate for knowledge-based establishments located in the United States, making it easier for them to compete against establishments in nations providing robust innovation incentives.

A patent box that significantly reduces the corporate tax rate on revenue from qualifying IP, based in part on the extent to which corresponding R&D and production is conducted domestically, would provide firms with a much stronger incentive to innovate and produce in the United States.

As such, Congress should establish a patent box regime modeled after those of other nations, allowing companies in the United States to pay a significantly lower rate on corporate income from patented products where the share of profits that are taxed at the lower rate depends on the extent to which related R&D and production is conducted within the United States.

Congress should establish a patent box regime modeled after those of other nations, allowing companies in the U.S. to pay a rate of 17.5 percent on corporate income from patented products.

One of the most interesting developments in the race for global competitiveness are what as known as patent boxes. If a patent box is designed in a way that links the incentive to the conduct of R&D and/or production of the patented product in the United States it would go even further in spurring the creation and location of more innovation-based jobs in the United States. Second, a patent box would lower the effective corporate tax rate for knowledge-based firms located in the United States, making it easier for them to compete against other firms in nations providing robust innovation incentives.
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