In late July, Reps. Charles Boustany (R-LA) and Richard Neal (D-MA) unveiled a “patent box” plan, which seeks to ease the tax burden on companies with income generated from patents and other intellectual property. This plan has gained support from a number of lawmakers, including Rep. Paul Ryan (R-WI), Chairman of the House Ways and Means Committee, who has made it clear that he intends on backing the proposed patent box legislation.

The patent box plan would impose a 10% tax rate on income generated from patents and other intellectual property, and would protect the income from normal corporate tax rates. The lower tax rate would apply to income derived from patents, trademarks and copyrighted material. The proposal results from a fear of U.S. businesses moving overseas to low tax jurisdictions and taking their intellectual property with them. The patent box attempts to incentivize keeping research in the U.S. by reducing tax on corresponding profits.

The patent box idea has become a popular trend in Europe. Beginning with Ireland, a number of European countries have adopted versions of the patent box. In an age when corporate inversions have become increasingly popular, the idea has gained support from individuals on both sides of the aisle. Influential senators such as Charles Schumer (D-NY) and Rob Portman (R-OH) have both come out in support of the plan. However, the Heritage Foundation has recently expressed its dissatisfaction with the plan, stating that Congress should focus on “broad business tax reform” instead.

The plan’s opponents generally site their desire for more general business tax reform. The desire for such reform has dominated headlines as of late, with congressional leaders offering different plans and potential presidential candidates being forced to take positions on specific tax policy issues. However, the likelihood of any such comprehensive reform remains doubtful, with partisanship blocking productivity and the 2016 presidential election looming. The patent box could offer the sort of attractive compromise between Democrats and Republicans who want to meet in the middle of comprehensive tax reform and no reform at all. Passage of the patent box proposal could very well boost innovation and ease the tax burden on small and midsized businesses.

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