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Innovation Box

Another Nail in the Coffin of Tax Reform

Perhaps without realizing it, the Obama administration sent Congress another signal that it is not serious about passing corporate tax reform this year, even a narrow bill limited to the international aspect of corporate taxation. Speaking at a conference devoted to the corporate taxation of intellectual property in a global economy, the chairman of the President’s Council of Economic Advisers, Jason Furman, listed several reasons why an “innovation box” (sometimes known as a “patent box”) would be bad policy. The problem is that an innovation box is one of the few serious components of corporate tax reform that has drawn interest from leaders in both parties in Congress. By preemptively ruling it out without proposing a serious alternative, the administration left little room for finding common ground with Congress.

There is widespread agreement that the U.S. corporate tax system is broken. In addition to imposing a significantly higher rate than most of its international competitors, the law taxes U.S. companies on all of their income earned abroad, but only when the income is brought back to the United States. This gives companies a strong incentive to keep foreign profits overseas.

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