[Congressional Record Volume 143, Number 27 (Wednesday, March 5, 1997)]
[Extensions of Remarks]
[Pages E380-E381]
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

                        Wednesday, March 5, 1997

  Mrs. JOHNSON of Connecticut. Mr. Speaker, today I, along with 
Representative Robert Matsui and over 40 other House Members, 
introduced legislation to permanently extend the research and 
development tax credit. This proposal will make permanent provisions 
included in last year's Small Business Job Protections Act, which 
restructured the existing research credit by providing among other 
things, an alternative credit increasing small businesses' and high 
tech industries' accessibility to this important investment incentive.
  Congress has reaffirmed its commitment to the research credit by 
extending it seven times since 1981. However, the existing credit is 
scheduled to expire in less than 3 months. It is imperative that 
Congress address this issue before the credit expires on May 31, 1997.
  Today, 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 16 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. As the marketplace changes and industries mature, we 
must continue to improve the effectiveness and utilization of this 
important program. Most importantly, 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 rapidly 
changing, global marketplace.

  In Connecticut, where 100 percent of all research activity in the 
United States takes place, numerous companies have take advantage of 
this critical legislation. Several large companies, including United 
Technologies, Pfizer, and Bristol-Meyers, have utilized this credit. In 
addition, several small companies, including Locknetics in Bristol, CT 
have used

[[Page E381]]

and will continue to use the R&D credit to expand their operations, 
hire more engineering staff, and expand their investment in the 
critical research field.
  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 of 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.
  I am pleased to be introducing this legislation with my friends and 
colleagues, Representative Robert Matsui, and Senators Hatch and Baucus 
in the Senate. 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.

                          ____________________