White House economic adviser Jason Furman expressed skepticism Tuesday about a tax idea that has been gaining support on both sides of the aisle in Congress.
Asked if the Obama administration supported an "innovation box," or a special low rate on income from intellectual property, as part of a larger international tax reform, Furman seemed to endorse a different strategy preferred by liberals instead.
Expanding an existing tax credit for research and development, Furman tweeted as part of a White House question-and-answer session, "directly encourages investments in new innovation, best bang-for-buck."
The online forum, conducted with the hashtag #WeThePeople, meant that any Twitter users could ask a question of Furman, who is the chairman of the president's Council of Economic Advisers. The innovation box question, however, was asked by Richard Rubin, a tax reporter for Bloomberg.
Furman's answer suggested an alternative to the bipartisan international tax reform framework agreed to by Sens. Rob Portman, R-Ohio, and Chuck Schumer, D-N.Y., earlier in the month.
The Portman-Schumer framework called for an innovation box, along with a move to an international tax system in which U.S. companies are no longer taxed on their foreign subsidiaries' income at the country's 35 percent corporate rate. The plan also would have instituted a one-time tax on the trillions of earnings U.S. companies currently have reinvested overseas to avoid taxation.
Although the plan, which didn't have any details, had the backing of Schumer and other Democrats on the working group tasked with developing an international tax reform plan, some left-leaning analysts do not approve of the patent box idea.
Critics argue that the research and development tax credit and other existing tax breaks mean that companies already pay very low or even negative effective tax rates on intellectual property-related income, and that instituting a lower rate for that income would constitute an expensive giveaway.
Proponents of the patent box see it as a way to prevent companies from moving highly mobile intellectual property assets out of the U.S. and into low-tax jurisdictions. Some European countries have innovation boxes or patent boxes with single-digit tax rates.
During the Twitter chat, Furman also suggested that the administration's priority in tax reform is protecting tax credits, such as the Child Tax Credit and Earned Income Tax Credit, aimed at alleviated poverty and promoting work. Many tax-reform plans involve cutting credits and deductions to lower rates.