[Congressional Record Volume 141, Number 21 (Thursday, February 2, 1995)]
[Extensions of Remarks]
[Page E259]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


               THE IMPORTANCE OF RESEARCH AND DEVELOPMENT

                                 ______


                         HON. NANCY L. JOHNSON

                             of connecticut

                    in the house of representatives

                       Thursday, February 2, 1995
  Mrs. JOHNSON of Connecticut. Mr. Speaker, the single biggest factor 
behind productivity growth is innovation. Two-thirds to 80 percent of 
productivity growth since the Great Depression is attributable to 
innovation. In an industrialized society, research and development is 
the primary means by which technological innovation is generated. 
However, because firms cannot capture fully the rewards of their 
innovation--the rate of return to society of innovation is twice that 
which accrues to the individual company--the market activity alone 
creates under-investment in R&D. The situation is aggravated by the 
high risk associated with R&D. Eighty percent of such projects are 
believed to be economic failures. Therefore, economists and technicians 
who have studied the issue are nearly unanimous that the Government 
should intervene to bolster R&D.
  If the United States fails to provide U.S. companies with competitive 
incentives to conduct R&D, many U.S. firms in key industries--
aerospace, electronics, chemicals, health technology, and 
telecommunications, to name a few--will find it harder to compete in an 
increasingly globalized marketplace, jeopardizing their leadership 
positions.
  For the past 13 years we have had an R&D tax credit, designed to 
provide an incentive for companies to conduct additional R&D in the 
United States. Some, myself included, believe the credit structure can 
be improved to increase its effectiveness, especially regarding small 
business and high-technology industries. As the marketplace changes and 
industries mature, we must continue to improve the effectiveness and 
utilization of this important program. We have made such changes on no 
fewer than four occasions in the past. Most importantly, however, we 
must remove the uncertainty surrounding the credit's extension and once 
and for all permanently extend the provision. Study after study has 
established that the credit's uncertain future reduces its ability to 
continue stimulating additional increases in R&D expenditures.
  To the extent that researchers in American laboratories are able to 
pioneer the new technologies, processes, and products that will drive 
global markets, we will be able to offer skilled and highly paid jobs 
to the next generation of Americans. That is why we must now underscore 
our permanent commitment to a leadership role in global technological 
advancement. If we fail to act, the R&D credit will expire in June of 
this year. Such failure is the opposite message we should be sending to 
U.S. businesses that are gearing up to meet the challenges of a rapidly 
changing, global marketplace.
  As we prepare to enter the 21st century, we must remain committed to 
providing an environment that fosters technological investment and 
scientific exploration. America's continued economic well-being depends 
on it. Such investment creates more and higher paying U.S. jobs, 
increases productivity, and, in turn, increases the U.S. standard of 
living.
  There is considerable discussion, on both sides of the aisle and 
within the Administration, about smaller government, less regulation, 
and market incentives as opposed to Government-dictated solutions. The 
R&D credit is an example of a successful program by which 
the Federal Government has encouraged market forces to dictate where 
and when innovation and technology should occur. The most recent study 
on the issue, prepared by KPMG Peat Marwick's policy economic group, 
concludes that ``a one dollar reduction in the after tax price of R&D 
stimulates approximately one dollar of additional private R&D spending 
in the short run, and about two dollars of additional R&D spending in 
the long run.'' That, in turn, implies long run increases in GDP. Thus, 
an effectively targeted R&D credit can help set the pace of growth and 
should not be allowed to expire.
  Currently the Government spends over $71 billion per year on 
nondefense R&D. This spending will, and should, come under scrutiny 
with the rest of Federal spending. This spending can be cut without 
reducing our commitment to U.S. commercial leaders of the technological 
revolution. I believe a permanent R&D credit should be enacted as part 
of a meaningful, market-driven program to stimulate R&D, and I 
sincerely hope such action can be completed before the June 30, 1995, 
expiration date.
  I am pleased to be introducing this legislation with my friends and 
colleagues, Representatives Robert Matsui, Wally Herger, and Richard 
Neal. I intend to work actively to ensure a permanent extension of the 
R&D credit and encourage all my colleagues, on both sides of the aisle, 
to work with me in this important endeavor.


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