[Congressional Record Volume 143, Number 21 (Tuesday, February 25, 1997)]
[Senate]
[Pages S1569-S1570]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRAMM (for himself, and Mrs. Hutchison):
  S. 355. A bill to amend the Internal Revenue Code of 1986 to make the 
research credit permanent; to the Committee on Finance.


                      research credit legislation

 Mr. GRAMM. Mr. President, today Senator Hutchison and I are 
introducing a bill to permanently extend the research and development 
tax credit. The R&D tax credit was originally enacted as a part of 
President Reagan's Economic Recovery and Tax Act of 1981 in order to 
encourage greater private sector investment in research and 
development. Since its creation, the credit has been extended seven 
times, and it is currently set to expire on May 31, 1997.
  Since its enactment in 1981, the benefits of the R&D credit have been 
enormous. Studies show that in the short

[[Page S1570]]

run, every dollar of the R&D credit stimulates a dollar of additional 
private R&D spending, and in the long run, each dollar of the credit 
yields up to $2 in additional private R&D spending. Furthermore, the 
rate of return from R&D spending to society as a whole is estimated to 
be as high as 60 percent.
  Given these facts, we can easily expect that the benefits of the 
credit will only be enhanced if it is extended permanently. A permanent 
extension of the R&D credit would encourage companies to take on 
additional research and development projects by allowing them to be 
certain that the credit will be in effect during these long-run 
initiatives. In fact, the ratio of R&D spending to output rose over 40 
percent in the 1980's when the R&D credit was in effect for the longest 
period of time.
  The R&D credit is an effective and proven incentive for companies to 
increase investment in U.S.-based research and development. The 
continued existence of the R&D credit is particularly important given 
the substantial tax incentives provided by many of our international 
competitors to their domestic R&D industries. The jobs created by R&D 
expenditures are exactly the kind of jobs we all claim to vote. In my 
home State of Texas alone, the average high-technology job pays $47,019 
a year--almost $20,000 more per year than the average private sector 
salary of $27,147.
  The need to make the credit permanent is only further highlighted by 
the fact that in 1996, for the first time in its history, the R&D 
credit was allowed to lapse--there was a gap in the law between July 1, 
1995, through July 1, 1996. Haphazard and unpredictable temporary 
extensions of the credit, combined with this recent lapse, have set a 
negative precedent for the research community.
  Businesses cannot and do not ignore the possibility of future gaps in 
the R&D credit, and will be understandably driven to scale back new 
long-term projects if they cannot be certain that the credit will 
continue. We should permanently extend the R&D tax credit to finally 
remove this unnecessary barrier to long-term research and development 
which has been created by the stop-and-go extension process.
  Finally, Mr. President, I want to point out that the R&D credit has a 
long history of bipartisan support. The President has signaled his 
support for the credit, not only by signing last year's extension as a 
part of the Small Business Job Protection Act, but also by proposing a 
further extension as a part of his fiscal year 1998 budget. 
Unfortunately, his proposal follows the ill-advised precedent of merely 
temporarily extending the credit.
  I believe that this credit must be made permanent, and I am proud to 
have joined 17 members of the Texas delegation in a letter to Chairman 
Archer and Chairman Roth calling for a permanent extension of the R&D 
tax credit. I ask unanimous consent that the text of this letter and 
the text of the bill be printed in the Record at the conclusion of my 
remarks. The time has come for us to demonstrate our long-term 
commitment to research and development, and I urge my colleagues to 
join me and Senator Hutchison in sponsoring this bill.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 355

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. EXTENSION OF RESEARCH CREDIT.

       (a) Credit Made Permanent.--
       (1) In general.--Section 41 of the Internal Revenue Code of 
     1986 is amended by striking subsection (h).
       (2) Conforming amendment.--Section 45C(b)(1) of such Code 
     is amended by striking subparagraph (D).
       (3) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid or incurred after May 31, 1997, 
     in taxable years ending after such date.
                                  ____



                                Congress of the United States,

                                Washington, DC, February 13, 1997.
     Hon William Roth,
     U.S. Senate, Washington, DC.

     Hon. Bill Archer,
     Washington, DC.
       Dear Gentlemen: We want to thank you for your leadership 
     last year in extending the Research and Development (R&D) tax 
     credit, and to solicit your further support. As you know, the 
     R&D credit will expire on May 31, 1997. We would like to 
     express out strong support for a prompt, permanent extension 
     of the credit.
       There are a number of excellent reasons why Congress should 
     permanently extend the credit. According to a recent study, 
     each dollar of tax benefits generates as much as two dollars 
     of long-term investment spending by the private sector. Also, 
     the ``spillover effects'' of R&D are outstanding; the rate of 
     return derived by society generally from R&D spending is 
     estimated to be as much as sixty percent.
       The R&D credit enjoys broad, bipartisan support and 
     provides a critical, effective and proven incentive for 
     companies to increase their investment in U.S.-based research 
     and development. The continued encouragement of private 
     sector led R&D is particularly important in light of the 
     substantial tax and other financial incentives offered by 
     many of our major foreign trade competitors. Moreover, 
     targeted almost exclusively at wages and salaries paid to 
     employees engaged in direct U.S.-based research and 
     development, the credit promotes the creation of new, high-
     skilled jobs.
       Texas companies lead the nation in many areas of research 
     and development and the growth of high wage jobs. Continued 
     growth of our economy is closely tied to the ability of our 
     companies to make a sustained commitment to long-term high 
     cost research. Again, thank you for your outstanding effort 
     on Texas' behalf in the past, and we look forward to working 
     with you to continue our shared commitment in research and 
     development.
           Sincerely,
                                                        Phil Gramm
                                   (and 17 other Members).
                                 ______