What is the focus of this study?
From a tax competition perspective, various governments, states and localities seek to incentivize innovative firms to locate in their jurisdiction by offering lowered tax rates, research and development credits, tax deductions, and tax holidays to benefit from increased employment and regional economic growth. On the other hand, taxation encompasses some of the most complex and burdensome rules that can increase the effective tax rates on innovative firms. Tax laws, thus, sometimes serve as a double-edged sword as they provide benefits, but in that process, also place high regulatory burdens (Eyal-Cohen, 2017). The latest limits placed by the Tax Cuts and Jobs Act of 2017 on the foreign tax credit is one example. The complex rules and procedures of the R&D tax credit is another example.
Why is this study necessary?
Recently, leading tax scholars and policymakers raised serious policy concerns regarding tax incentives for innovation. They argued that the definition and scope of innovation market failures, which may justify government intervention, are vague (Shay, et al. 2016). They claimed that it is conceivable that R&D would occur regardless of tax benefits (Buson, et al., 2014). To what extent do certain tax rules serve as catalysts or barriers to R&D investments? The dearth of research with respect to the causal effect of tax rules on innovation efforts in the U.S. has resulted in insufficient evidence to ground theories and policy recommendations.
This project aims to fill this gap by conducting empirical fieldwork with discrete research tools to affect tax policy regarding innovation. While existing studies on the effect of taxation on innovation are unsatisfying and rely mainly on stratified samples of financial data, this study adds an important feature- the perspectives of decision makers at the C Suite level on the impact of taxation on their decisions.
How long would it take? Is this study safe?
This project will conduct a rigorous empirical study using a short survey (https://universityofalabama.az1.qualtrics.com/jfe/form/SV_eRq1947EQwV6NLL) and a brief interview with high-level decision makers in large tech companies (1000+ employees) at the San Francisco Bay area. The surveys and interviews will present an array of questions relating to various tax rules and benefits to gauge the level of relevance and impact of those rules on R&D efforts. The research does not focus on any information of a confidential character, and all information will be anonymized by the PI to prevent compromising the identity of participants.
How would you use the results of the study?
Research team members will collect the anonymized data and compile, analyze, and prepare a report of findings using “grounded theory” in its qualitative analysis of tax law and innovation theory, along with quantitative insights from surveys and interviews. It will then present findings in a report to the U.S Treasury Department and members of the U.S. Congress, tax advocate groups, and academic forums. The results will include recommendations for program design, policy, and future research. Our goal is to help modify ineffective tax rules that place burdens and obstacles to investments in R&D and facilitate the creation of tax incentives that successfully support it.
Why should I take part in this study?
The Study will present a unique opportunity for C Suite Executives to partner with academia and learn, voice, and inform legislators and regulators which tax rules work and which hinder innovation. The results of this study will also provide opportunities for lessons and potential policy action plans to improve the effect of state and federal tax policies. It will also provide an opportunity for legislators to learn about the perception and effect of taxation from their constituents who are high-level tech executives. The study’s outcomes will be presented in various academic forums to encourage implementation of research findings in future policy reforms as well as in classroom instruction.
Mirit Eyal-Cohen
Senior Visiting Scholar, UC Berkeley School of Law
Professor of Law, University of Alabama School of Law
Irving Silver and Frances Grodsky-Silver Faculty Scholar
Cell Phone: (310) 936-0680, meyalcohen@law.ua.edu
