A troubling development is underway within the U.S. Department of Commerce that risks suppressing the creativity of top American inventors, innovators, and problem solvers.
The department is considering a tax on the most successful U.S. patents up to 5 percent of their value. This course of action—never taken before in our nation’s history—would usher in a host of counterproductive consequences, namely displacing the global leadership and prestige of America’s innovators and handing them to adversaries and competitors abroad.
Commerce must abandon its avant-garde policy proposal and uphold America’s longstanding model of rewarding competitive domestic invention, especially through democratized, merit-based patents and the full fruits of their associated labor and investment. A tax on patents will counteract the pro-growth elements of President Trump’s One Big Beautiful Bill Act (OBBBA).
Commerce Secretary Howard Lutnick should understand–as an American patent owner himself–that the purpose of a patent is to secure inventors’ exclusive property rights and any rewards resulting from their inventions. Thomas Edison is credited with inventing the “incandescent lamp,” an invention for which he secured patent rights on January 27, 1880. It’s Edison’s inherent right to own the invention and the right to the profits from his successful initiative. His creative endeavor costed him immense time, effort and expense. Without that patent, someone could have stolen or infringed Edison’s bright idea, reaping the credit and profits he deservedly achieved.
Yet, the patent tax being floated flies in the face of the bedrock right to patent exclusivity and all of its fruits. In fact, a tax on success sends a not-so-subtle message to modern Edisons: Ingenious works are not safe from such government overreach of the highest degree.
Taxing patent valuations–something only Congress has the authority to attempt–steals deserved rewards from innovators and hands it over to Big Government. Patent owners already must pay maintenance fees to fund the Patent and Trademark Office (PTO). The PTO collects roughly $4.5 billion in fee revenue annually from these maintenance fees alone. Adding a novel tax scheme to the mix siphons even more from private-sector entrepreneurs’ hard-earned fruits, discouraging them from pursuing inventive efforts in the most valuable technologies. It will deny them precious research and development funds to advance progress of science and useful arts where they’re needed most. Government has a pathetic, poor record on efficient resource allocation.
The proposed patent tax would be based on an arbitrary valuation of each patented product’s worth. Patent value is known to rise and dip with market shifts. This makes it nearly impossible to calculate the market value of a given patent or invention. Further, PTO lacks expertise in accurately predicting the commercial success of a patented technology. Thus, government picking winners and losers based on perceived patent worth marks a definite step away from the highly successful American patent-free enterprise system.
Biting into innovators’ and investors’ incentives raises our foreign adversaries’ chance to outrun us in areas of international competitiveness where a tax on U.S. innovators does the most damage. The tax being considered translates into nations, including China, finding it much easier to outcompete us in the realm of emerging technologies, such as “semiconductors, medicine, quantum computing, artificial intelligence, energy, advanced materials, aeronautics, and national security-related technologies.”
Consequently, competitors overseas would quickly become more attractive to investors who might otherwise invest in U.S. R and D projects and technologies. Their investments in overseas firms is exactly what provisions of the OBBBA seek to dissuade. Rather, the Commerce Department should supplement and support the business tax provisions in the OBBBA that would draw companies to locate intellectual property on U.S. soil. These will have their greatest effect if the patent tax is abandoned.
The Founders believed that fostering American innovation is so essential they protected it under Article I, Section 8 of the U.S. Constitution. Lawmakers and officials of the 21st century must not undermine this essential constitutional right through burdensome, top-down tax schemes that run counter to innovation’s incentives. Instead, our leaders must ensure that we benefit from the prowess of our nation’s brightest minds through predictable, protected property rights and America’s commitment to economic freedom—in particular, innovators’ full rights to allocate resources and full use of the fruits of their labor.
James Edwards is the Executive Director of Conservatives for Property Rights and Author of To Invent is Divine: Creativity and Ownership.