Tax Policy and Investment by Startups and Innovative Firms

35 Pages Posted: 6 Mar 2015

See all articles by Joseph W. Rosenberg

Joseph W. Rosenberg

Urban-Brookings Tax Policy Center

Donald B. Marron

The Urban Institute

Date Written: February 9, 2015

Abstract

Our tax system imposes widely varying tax rates on investments in different activities, favors debt over equity, and favors pass-throughs over corporations. Targeted tax incentives can lower the cost of capital for small businesses, startups, and those that invest in intellectual property. But those advantages are weakened, and sometimes eliminated, because businesses that invest in new ideas rely more on higher-taxed equity than do firms that focus on tangible investment and because startups are often limited in their ability to use tax deductions and credits. These limits can more than offset the benefit from tax incentives.

Keywords: tax policy, investment incentives, innovation, METR

JEL Classification: H2, M13

Suggested Citation

Rosenberg, Joseph W. and Marron, Donald B., Tax Policy and Investment by Startups and Innovative Firms (February 9, 2015). Available at SSRN: https://ssrn.com/abstract=2573259 or http://dx.doi.org/10.2139/ssrn.2573259

Joseph W. Rosenberg (Contact Author)

Urban-Brookings Tax Policy Center ( email )

Urban Institute
2100 M Street NW
Washington, DC 20009
United States

HOME PAGE: http://www.taxpolicycenter.org

Donald B. Marron

The Urban Institute ( email )

2100 M Street, NW
Washington, DC 20037
United States

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