In the late 1940s and early 1950s, Robert Paxton McCulloch almost built a steam-powered automobile, but abandoned the project in 1954. A foreman with his company claimed that the abandonment was caused by unfavorable tax laws.
Perhaps the most ironic thing is that the same complaints about the state of the R&D tax laws pre-1954 still exist to this day. Things were complex and uncertain then; things are still complex and uncertain now. Just this year, the Joint Committee on Taxation wrote:
To the extent that research activities are responsive to the price of research activities, the research and experimentation tax credit should increase research activities beyond what they otherwise would be. However, the present-law research credit contains certain complexities and compliance costs that may obscure this effect.
So, uncertainty about the tax laws in the past deterred research and development, and probably still does. Was the deterrence enough to torpedo the Paxton Phoenix steam car? Perhaps, but there were quite a few other usual suspects to round up. Things are somewhat better now, with Section 174 and the on-again, off-again Section 41. Are the new improvements in the tax laws (compared to pre-1954) sufficient to inspire another run at steam technology? Maybe. It would certainly help if we knew more about them.
This Emerging Issues Analysis describes the development of McCulloch's steam-powered automobile--the Paxton Phoenix--and considers the question, "Who shot the Phoenix?" Was it the tax laws, or was it something else?
Joel Newman is a well known nationally and internationally as a tax scholar and lawyer. He is the author of Federal Income Taxation: Cases, Problems and Materials, now in its 3rd edition, and has written and lectured extensively on tax and professional responsibility topics. He has taught as a visiting professor at the University of Hawaii, University of Florida, Notre Dame and Xiamen University, in the People’s Republic of China.
LEXIS users can access the complete commentary HERE. Additional fees may apply. (Approx. 18 pages)
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