By Kate Hudson
A new tax proposed by Commerce Secretary Howard Lutnick threatens to harm innovation and dampen economic growth.
Back in September, Lutnick told Axios that he wants to impose a 50% tax on the revenues that universities earn from helping to bring research discoveries to market. Lutnick indicated in his remarks that, because the federal government funds significant amounts of the scientific research that universities conduct, it should get returns on its investment if resulting discoveries yield a profitable product such as a drug or a new technology. “I think universities, who are getting all this money. The scientists get the patents, the universities get the patents and the funder of $50 billion, the U.S. government, you know what we get? Zero,” Lutnick said.
While framed as a win for taxpayers, Lutnick’s proposal would actually cause major disruptions to a system that has brought the world innovations such as Google; mRNA technology; CRISPR gene editing; Honeycrisp apples; and drugs such as Lyrica (nerve pain treatment), Zerit (one of the first HIV/AIDS treatments), Xtandi (prostate cancer treatment), and Herceptin (breast cancer therapy).
These innovations were made possible by a system of technology transfer from universities to industry that has its underpinnings in the 1980 Bayh-Dole Act.
Prior to 1980, the federal government retained patents on all discoveries that were based upon federally funded university research. But the result was that the government rarely licensed its patents to private industry, leaving life-changing inventions on the shelf to gather dust instead of reaching consumers as viable commercial products. The Bayh-Dole Act changed all that by allowing recipients of federal funding to own patent rights and by encouraging universities and researchers to partner with the private sector to bring new discoveries to the market.
The university-private industry partnership encouraged by the Bayh-Dole Act has been remarkably successful. Since 1996, the legislation has led to more than $1.9 trillion in U.S. economic growth, created 6.5 million jobs across the country, and contributed to the success of more than 19,000 new startup companies throughout the United States.
Lutnick’s proposal undermines the legislative intent of the Bayh-Dole Act while ignoring several realities:
Licensing revenue rarely yields significant income for universities: Lutnick’s proposal incorrectly assumes that universities profit handsomely from licensing their patents. In reality, few inventions generate significant income. University income from licensing has actually been steadily decreasing over the past few years, according to AUTM – down nearly 30% in 2024 from a peak of $3.8 billion in 2022.
Further, universities incur major expenses in facilitating technology transfer to industry. Many barely break even after covering patent and other costs; a 50% tax on licensing revenue would make those activities unviable and unsustainable for most universities.
Lutnick’s innovation tax would, therefore, raise a minimal amount of federal revenue but have an outsized effect on university technology transfer operations and the economic growth they generate.
The proposal would actually lower federal tax revenue: Successful startups and companies made possible by university technology transfer pay federal taxes on the profits they earn. By discouraging the creation of new startups, the federal government would see fewer taxpayer returns under Lutnick’s proposal.
Taxpayers already benefit from university licensing revenue: By law, universities must reinvest the income they earn from licensing patents directly into research and education. Universities use licensing revenue to fund graduate students, build new labs, and support the next generation of scientists. The revenue thus yields a compounding benefit for taxpayers – any income earned from successful university-industry partnerships goes right back into fueling America’s innovation engine.
The government already has better solutions at its fingertips for maximizing returns on university research investments: During the Trump administration’s first term, the Commerce Department gathered extensive input from public and private sectors and put out a “green paper” providing recommendations on how the federal government could “unleash American innovation” by improving the “Lab-to-Market” process.
Back in 2018, the first Trump administration acknowledged that “the current system of moving federally funded R&D from lab to the market has helped the U.S. lead the world in innovation for decades,” and that improving the system would “enable revolutionary advances in industries such as artificial intelligence, advanced manufacturing, quantum information science, and advanced communication technologies.”
Secretary Lutnick’s proposed 50% tax on university licensing revenue would penalize success, choke the innovation pipeline, harm our economy and competitiveness, and leave discoveries locked up in labs. The administration should, instead, engage the university community and the private sector in implementing its own 2018 recommendations to improve technology transfer.
Kate Hudson is Deputy Vice President and Counsel for Government Relations and Public Policy at AAU.