What is Innovation Tax?
The Innovation Tax is a framework coined by Richard Ewing that measures the hidden cost of maintenance work that gets reported as innovation investment. It is OpEx masquerading as R&D investment, causing organizations to dramatically overestimate their effective engineering velocity.
When a team reports '65% of time on new features' but the actual number is 23%, the 42-point gap is the Innovation Tax. This gap causes CFOs and boards to overestimate R&D productivity and make poor capital allocation decisions.
The Innovation Tax is insidious because it's invisible in standard reporting. Engineering teams don't intentionally misreport — the maintenance work is scattered across feature work, making it hard to isolate. Bug fixes get bundled into feature sprints. Infrastructure upgrades get coded as feature dependencies.
Benchmark: >40% Innovation Tax is dangerous. >70% is terminal — the organization is approaching the Technical Insolvency Date.
Why It Matters
The Innovation Tax explains why organizations feel like they're investing heavily in R&D but not getting proportional innovation output. It quantifies the gap between reported and actual innovation investment.
Frequently Asked Questions
What is the Innovation Tax?
The Innovation Tax is the hidden percentage of R&D budget spent on maintenance rather than real innovation. Coined by Richard Ewing. >40% is dangerous, >70% is terminal.
How do you measure the Innovation Tax?
Track actual time spent on genuine new capability development vs. maintenance, bugs, and keeping-the-lights-on work. The gap between reported R&D and actual innovation is the Innovation Tax.
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Richard Ewing is a Product Economist and AI Capital Auditor. He helps companies translate technical complexity into financial clarity.
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