Research Responses to the Orphan Drug Tax Credit

• In Event: Health Care Spending and Costs

Abstract

As part of the Tax Cuts and Jobs Act of 2017 (TCJA), policymakers reduced the tax credit for qualified R&D expenditures on orphan diseases (diseases that affect fewer than 200,000 people in the U.S.) from 50% to 25%. This project disentangles the effects of the orphan drug tax credit reduction on orphan drug R&D from the effects of other tax changes under the TCJA. Additionally, this project models how different types of tax incentives (e.g., tax credit versus tax deduction) may affect both the level and distribution of R&D on the treatment of orphan diseases, relative to all others. We explore the heterogeneous effects of these tax incentives on small versus large pharmaceutical companies, as these company types may differ 1) in the stages of R&D they focus on, 2) the tax structures they face, and 3) the value they gain from tax credits.

Authors

• Camila Bratten, cthanos@umich.edu

• Xinyu Chen, University of Michigan

• Catherine Cox, caecox@umich.edu