Revenue Implications of a Potential U.S. Patent Boxes

A robust workforce and ample investment are the main ingredients of a growing economy. But the alchemy that produces truly booming economies often lies in technological breakthroughs. To foster these leaps in innovation, nations (the United States included) provide funding for basic research patent protections and tax incentives. Innovation or patent “boxes” are a growing feature of many nations’ research support policies that attract research-intensive investment. Patent boxes offer preferential tax treatment of income derived from intellectual property, often patent-related income.

Myriad public policies have been put in place to spur the innovation essential to improving living standards. Patent boxes are gaining favor overseas as an additional policy support for innovation, and are gaining attention from policymakers here. Depending on key assumptions, costs could vary dramatically, with a revenue loss for a standalone 10 percent incentive of $236 billion on income for all patents, or cost as little as $5 billion for a 15 percent rate on income from new patents and within the context of an overall tax reform.

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