As the U.S. Congress considers the tax proposal put forward by Republicans, there has been plenty of debate over how it would affect innovation. But the tax bill’s effect on innovation won’t depend solely on the provisions dedicated to universities or corporate R&D. As two recent studies remind us, the likelihood that would-be inventors live up to their potential depends on many other factors – not just their abilities, but also the environment they grow up in. The tax bill would make America even less equal, and as a result even more would-be Einsteins will fail to achieve their potential.



CSA plastock/Getty Images

As the U.S. Congress considers the tax proposal put forward by Republicans, there has been plenty of debate over how it would affect innovation. Proponents argue that lower taxes would increase corporate investment; critics contend that the bill would hurt research universities and that the bills as written would neutralize the R&D tax credit for businesses.

But the tax bill’s effect on innovation won’t depend solely on the provisions dedicated to universities or corporate R&D. As two recent studies remind us, the likelihood that would-be inventors live up to their potential depends on many other factors — not just their abilities but also the environment they grow up in; the incomes of their parents; the quality of the public services they receive, particularly education in science and math; and the health of their communities. And those things depend on public policy, including taxes. The weight of the evidence suggests that the most effective way to generate new innovators is by reducing poverty, improving social mobility, and making sure that more communities can point to homegrown innovators for children to emulate. And there’s little reason to think the tax bill will help on any of those fronts.

In a recent paper, a team of researchers at the Equality of Opportunity Project, led by Harvard’s Alexander M. Bell, studied more than 1 million inventors in the U.S. to determine the factors that affect who ends up filing a patent — and who doesn’t. “There are large disparities in innovation rates by socioeconomic class,” they conclude, unsurprisingly, as evidenced by this chart:

All else being equal, top students are much more likely to go on to patent. But all else isn’t equal. “Children with parents in the top 1% of the income distribution are ten times more likely to become inventors than children with below-median income parents,” the researchers write in a summary of their paper, and this effect cannot be explained by student ability. “Becoming an inventor relies upon two things in America: excelling in math and science and having a rich family.” Notably, the research team found similar, if slightly less extreme, gaps by race and gender.

The paper also finds evidence that the community you grow up in shapes your likelihood of inventing. Bell and his colleagues looked at whether individuals are more likely to patent in fields that are well represented where they grew up rather than where they live as adults. “Among people living in Boston,” they write, “those who grew up in Silicon Valley are especially likely to patent in computers, while those who grew up in Minneapolis — which has many medical device manufacturers — are especially likely to patent in medical devices.” And “women are more likely to invent in a given technology class if they grew up in an area with many female inventors in that technology class.”

Further evidence that social circumstances shape one’s likelihood of becoming an inventor comes from another recent paper, by Philippe Aghion of College de France and his colleagues, looking at data on men in Finland. (They study men because they use IQ data available as a result of conscription by the Finnish military.) They too find that the children of wealthy parents are far more likely to go on to be inventors, as are the children of highly educated parents. And this remains true even after accounting for children’s intelligence.

That’s not to say that parental income or socioeconomic status fully dictate who becomes an inventor — far from it. In fact, Aghion and his colleagues find that, in Finland, men with high IQs are far more likely to patent than men with lower IQs, even after accounting for their parents’ income and education. “[The effect of IQ] on the probability of inventing…is almost five times as large as that of having a high-income father,” they write.

Nonetheless, both papers point to the large number of missing innovators — those who would likely go on to invent had they grown up in different circumstances. Aghion and his colleagues find that patenting is dominated by extremely high-IQ individuals, but suggest that “a positive fraction of individuals with very high IQ will underperform as potential innovators due to inadequate parental background.” Bell and his collaborators bemoan America’s “lost Einsteins” and calculate that “if women, minorities, and children from low-income families were to invent at the same rate as white men from high-income (top 20%) families, the rate of innovation in America would quadruple.”

What would it take to close those gaps? The answer probably isn’t lower taxes. That’s not because financial incentives don’t matter at all for inventors; they do. Two recent studies found that tax rates affect where inventors choose to live, though the magnitude of the effect differed significantly between studies. But while lower taxes may be a way to attract existing inventors, the Bell team remains skeptical that they’re the most effective way to create new ones. For one thing, scientific breakthroughs come from a relatively small group of people, so the benefits of broad-based tax cuts will mostly flow to other people. For another, top inventors are already well compensated — inventors whose patents are in the top 1% by citations earn over $1 million per year on average — and so, the researchers conjecture, may be less responsive to changes in tax policy.

Instead, the Bell team suggests a “focus on policies that harness the under-utilized talent in these groups by providing them greater exposure to innovation,” and that “improving opportunities for disadvantaged children may be valuable not just to reduce disparities but also to spur greater innovation and growth.”

It’s here that tax policy likely has its biggest effect on innovation. Providing more equitable opportunities requires, among other things, public policy: better schools, affordable health insurance, jobs that pay better than subsistence wages, and a generous social safety net. For instance, research has found that social welfare programs increase the number of people who start new businesses, by providing the financial safety net necessary to take risks; the research discussed above suggests that something similar could be true for creating the next generation of inventors.

America funds these programs through tax revenue. If the ultimate effect of the tax bill on America’s long-term prospects depends on how it affects innovation, that in turn will depend not just on the tax incentives it offers to innovators but also on the social programs the U.S. chooses not to fund as a result.

Even putting aside social programs, the research strongly suggests that children of wealthier families are more likely to become inventors. And yet the best estimates of the tax bill suggest that within a decade, the bottom fifth of Americans would see their take-home incomes fall. The bill would make America even less equal, and as a result even more would-be Einsteins will fail to achieve their potential.