Incorporating Intangibles into TPC Effective Tax Rate Models

Intangible assets, such as patents and research and development spending, represent an increasingly large fraction of investment in the economy. In this paper, we review the historic tax treatment of R&D and intangibles in the US and their economic significance. We update TPC effective tax rate models by incorporating the capitalization of R&D, the research and experimentation (R&E) tax credit, and the foreign-derived intangible income (FDII) deduction. We show how these policies impact effective average and marginal tax rates (EATRs and EMTRs) and shape investment incentives for intangibles.