UP Senor Fellow Tomas Philipson on the Secretary of Commerce's proposal to wallop patent-holders with a new 50% tax:
Joseph P. Allen is right to criticize the commerce secretary's proposed 50% tax on patent royalties resulting from federally funded grants and contracts...
When tax-exempt universities and their departments receive compensation contingent on the earnings of the companies born from specific patents, their rewards are indirectly cut by corporate or capital-gains taxes. Every subsequent shareholder investing in those companies, moreover, pays back the early investor, Uncle Sam, through income, corporate or capital-gains taxes. Such a sweet deal for an early investor is unheard of in the private sector...
An additional tax of this magnitude would dramatically cut the amount of innovation and attendant tax revenue that the government would enjoy--the same dynamic that obtained before the Bayh-Dole Act of 1980. How would reverting to that sorry state help taxpayers?