Ex-Trump Official Warns Conservatives Risk ‘Killing America’s Golden Goose’ with Research Taxes

(SeaPRwire) –   Proposals from certain conservative think tanks and Department of Commerce officials to tax the income universities generate from licensing federally funded research discoveries could stifle innovation. By taxing the primary driver of economic growth—research and development—these measures threaten progress in vital sectors like medicine, energy, and semiconductors. Furthermore, the government already benefits significantly from these investments through the various taxes generated by the resulting innovations.

Economic expansion relies on R&D, which is why the U.S. and other nations support it through public grants and tax incentives. The suggested R&D tax would undermine these efforts. For instance, the CATO Institute has proposed that the federal government claim royalties on patents derived from taxpayer-funded research, while the Brownstone Institute has suggested the more drastic step of abolishing the Bayh-Dole licensing framework. Similar ideas regarding patent taxation have also emerged from the Department of Commerce.

Under the current system, universities can patent discoveries made through federal grants and license them to private entities. The resulting royalties are then reinvested to fuel further scientific breakthroughs.

This framework was established by the 1980 Bayh-Dole Act to incentivize technology transfer. Before this law, the government held the rights to intellectual property, leaving universities with little reason to patent discoveries. Consequently, while taxpayers funded significant research, many scientific advances failed to reach the market as commercial products.

While university technology transfer offices generate only a few billion dollars in annual licensing revenue, their economic impact is far greater. These offices serve as the foundation for innovation ecosystems, including venture funds and startups, which attract substantial private investment. Last year, university-affiliated research parks contributed approximately $33 billion in federal tax revenue, vastly exceeding the income universities receive from patent licensing.

Taxation inevitably discourages the activity being taxed. Experts in the field warn that such a policy would lead universities to reduce their investment in technology transfer, with 95% predicting a significant scale-back or total abandonment of licensing initiatives.

From a venture capital perspective, startups are particularly vulnerable because they depend on tech transfer offices to identify promising breakthroughs. Without these offices, firms would lack the capacity to track the output of thousands of individual research laboratories.

The success of tech transfer is evident: since 1996, it has added nearly $2 trillion to the U.S. industrial output and led to the creation of almost 20,000 companies. In 2024 alone, 950 new startups were established to bring academic research to the marketplace.

Major industries have been transformed by this process. The American biotechnology sector, led by companies like Biogen and Genzyme, is rooted in university research, as is Google, which began at Stanford. If new tax policies prevent even one such company from forming, the resulting loss in tax revenue would far outweigh any gains from the proposed R&D tax.

It is counterproductive for the government to tax the very activities it subsidizes. This “tax-spend-tax” cycle is inefficient, similar to the logic behind reducing taxes on Social Security benefits. There is little sense in collecting taxes only to redistribute them and then tax them again.

While proponents argue the government deserves a return on its R&D investment, they overlook the fact that the government already receives a substantial return. The companies that utilize university research pay corporate taxes, their staff pay income taxes, and their investors pay capital gains taxes. Additionally, researchers pay taxes on royalties and equity.

In essence, the public is already receiving significant “royalties.” The government captures a portion of the value at every stage of the innovation process, achieving returns that would be the envy of any private investor.

Implementing these taxes would ultimately result in fewer jobs, fewer startups, and a decrease in total Treasury revenue. Taxing R&D remains one of the most significant obstacles to economic growth.