House Republican to roll out ‘innovation box’ plan

A senior GOP lawmaker will roll out a plan Wednesday to cut taxes for income spurred by intellectual property, as House Republicans lay the groundwork for a potential major highway and tax reform deal.

Rep. Charles Boustany (R-La.) said his so-called “innovation box” would be a central part of the House GOP’s plan to revamp how the U.S. taxes multinational corporations, which he expects Ways and Means Chairman Paul Ryan (R-Wis.) to introduce this fall.

Boustany, a senior Ways and Means member, added that he’d gotten a top Democrat on the panel, Rep. Richard Neal (Mass.), to co-sponsor the measure.
“We’ve talked to a lot of companies,” Boustany told reporters Tuesday. “We’re going to put this draft out, gather a lot of feedback from across different sectors of the economy — tech, pharmaceutical, manufacturing, so forth.”

A bipartisan group of lawmakers have shown an interest in innovation or patent boxes in recent months. Under those sorts of proposals, companies could pay a lower tax rate on patents, copyrights, trade secrets and other intellectual property.

House Republicans are broadly in favor of using an international tax agreement that would include an innovation box to fund a full six-year highway bill. They passed a five-month extension of highway projects this month, in an effort to buy time to work on that sort of plan.

Sens. Rob Portman (R-Ohio) and Chuck Schumer (D-N.Y.) have released a similar framework across the Capitol, but Senate Majority Leader Mitch McConnell (R-Ky.) has been deadset against trying to marry tax reform and highways.

The Senate is instead expected to pass a six-year highway bill this week. Both chambers are also expected to extend highway programs until the end of October, which would allow House Republicans to work on their international tax plan over the next three months.

“The interest in highway revenue is driving a lot of this in the House. We know where McConnell stands on it in the Senate,” Boustany said. “In the House, we’re going to use this interest to drive the process.”

A broader international tax deal would also shift the U.S. to a so-called territorial system that would shield most offshore corporate income from taxation and likely implement new rules to keep companies from gaming the system by shifting income to tax havens.

Lawmakers have also discussed taxing the cash that corporations have already stashed offshore — currently around $2 trillion — far below the 35 percent corporate rate to finance road projects.

But there are also questions about how an innovation box, which has become popular in Europe in recent years, would work. Boustany acknowledged Tuesday the proposal would lose revenue on its own, though he said congressional scorekeepers haven’t finished their examination of the measure yet.

The industries that would get the most assistance from a patent box, like the high-tech and pharmaceutical sectors, already have a reputation for tax avoidance. There are also questions about what sort of intellectual property should get the lower rate.

Boustany said Ryan hoped to introduce the House’s broader international tax plan shortly after lawmakers returned from their August recess.

“I think the hard part was the innovation box, because that was new,” he said.