Yesterday, I wrote about new research finding that “patent boxes,” policies popular in the EU that tax income from patents at a lower rate, do not increase innovation as intended.
But using the tax code, rather than creating monopolies, to subsidize innovation is an interesting idea. It reminded me of a report by Dean Baker published last year by the American Enterprise Institute titled “Eight Market-Oriented Proposals That Reduce Income Inequality.” Baker makes the case for providing tax credits to artists in exchange for giving up the opportunity for copyright protection.
A way to finance creative work without having a government agency of culture or its equivalent would be to have a modest individual tax credit (e.g., $75 per adult per year) that could be devoted to support whatever creative workers or intermediaries they choose. The model for this system would be the tax deduction for nonprofit organizations.
To be eligible to receive funding through this system, a person would have to register in the same way that a nonprofit does. This means simply telling the IRS what creative work a person does. The IRS makes no judgement of quality, just as it does not address the quality of a think tank or the veracity of the beliefs of a particular religion. The condition of getting money is that a person would not be eligible for copyright protection for a certain period of time after receiving funding through the tax credit system (e.g., three to five years)…
If the $15 billion [the estimated cost of Baker’s proposal] could be made available even with this modest tax credit, it would likely produce a sum that is comparable or larger than the money the copyright system actually provides creative workers.
The whole report is well worth reading, but this is an interesting idea in the same spirit as patent boxes, but with greater potential to achieve the desired results.