Panelists at a joint AEI/International Tax Policy Forum event Friday explored the impact of taxes on innovation, especially research and development (R&D), in today’s global economy. James Shanahan and Tao Wang of PricewaterhouseCoopers opened with an overview of innovation taxation around the world, focusing on China. Shanahan asserted that innovative activities have important spillover effects that countries try to capture through tax incentives. The U.S., he said, was once the world leader in incentivizing R&D, but has fallen far behind over time. In the second panel, Nirupama Rao of New York University presented her research on the U.S. R&D tax credit from 1981 to 1991; she found that qualified research expenditures were highly responsive to tax changes but that R&D reported on financial statements was less so. The third panel featured Institute for Fiscal Studies economists Rachel Griffith and Helen Miller, who looked at how firms relocate patents to respond to lower tax rates on patent-related income, specifically to benefits afforded by “patent boxes.” The day concluded with a broad discussion of how the U.S. should tax innovation.
The experts’ general consensus was that tax incentives do affect where firms locate intellectual property and R&D, whether the benefits are offered on front-end research or back-end income. Less clear is whether innovation disproportionally benefits its nation of origin enough to justify the costs and what those costs might be. While these policies clearly shift behavior, it is also difficult to understand the costs and benefits of the new behavior.
About this Event
In today’s global economy, countries must constantly compete for corporations’ research activities. However, U.S. tax policy lags behind many other developed countries in attracting firms’ research and development (R&D) centers, a key source of jobs and economic growth. The OECD’s Science and Technology Scoreboard ranked the U.S. as 24th lowest out of 38 countries in terms of tax incentives per dollar of R&D. Recognizing the economic importance of the innovation R&D fosters, six European Union member countries in the last decade have adopted reduced tax rates for income derived from patents and certain other intellectual property. And the United Kingdom recently released details of a 10 percent rate on income derived from new innovations, to take effect in 2013.
With the increased mobility of research activities and intellectual property, this conference will focus on how countries should tax innovative activities, answering important questions for countries that seek to promote economic growth through innovation.
Full video is usuallyposted within 24 hours after the event.
Registration and Breakfast
JOHN SAMUELS, General Electric
KEVIN A. HASSETT, AEI
Panel I: Innovation Tax Policy Around the World
MICHAEL GRAETZ, Columbia University
JAMES SHANAHAN, PricewaterhouseCoopers (Topic: R&D Tax Incentives)
Ken Gao, PricewaterhouseCoopers (Topic: China’s Innovation Tax Policy)
Panel II: How Effective Are Tax Incentives at Encouraging R&D?
MIHIR DESAI, Harvard University
NIRUPAMA RAO, New York University
ROSANNE ALTSHULER, Rutgers University
Panel III: Corporate Tax Policy and the Location of Innovative Activity
MATTHEW SLAUGHTER, Dartmouth College
RACHEL GRIFFITH, University of Manchester
HELEN MILLER, Institute for Fiscal Studies
C. FRITZ FOLEY, Harvard University
Panel IV: How Should the United States Tax the Returns to Innovation?
JAMES HINES, University of Michigan
ALAN AUERBACH, University of California, Berkeley
MICHAEL GRAETZ, Columbia University
PAUL OOSTERHUIS, Skadden
STEPHEN SHAY, Harvard University
Event Contact Information
For more information, please contact Chad Hill at [email protected], 202.862.5862.
Media Contact Information
For media inquiries, please contact Véronique Rodman at [email protected], 202.862.4871.