[Congressional Record Volume 143, Number 156 (Saturday, November 8, 1997)]
[Senate]
[Pages S12131-S12132]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself, Mr. Baucus, Mr. Mack, Mr. Abraham, Mr. 
        Conrad, Mr. Lieberman, Mr. Murkowski, Mrs. Boxer, Mr. 
        Rockefeller, Mrs. Feinstein, Mrs. Murray, and Mr. Durbin):
  S. 1464. A bill to amend the Internal Revenue Code of 1986 to 
permanently extend the research credit, and for other purposes; to the 
Committee on Finance.


The Research and Experimentation Credit Permanent Extension Act of 1997

  Mr. HATCH. Mr. President, today I am proud to introduce a bill with 
my colleagues Senators Baucus, Mack, Abraham, Conrad, Lieberman, Boxer, 
Murkowski, Rockefeller, Feinstein, Murray, and Durbin to make the tax 
credit for increasing research activities permanent. Companion 
legislation has been introduced in the House by Representatives Nancy 
Johnson and Robert Matsui.
  The United States is a leader in the development of new technology. 
Historically, the R&E credit has played a major role in elevating this 
great Nation to such a significant and influential leadership position. 
The United States is currently ahead of the ever increasing competition 
in developing and marketing new products. With greater market 
challenges in the future, we will have to fight hard to maintain the 
U.S. lead in new technology and innovation. The role of the R&E tax 
credit will be increasingly important.
  But, we must recognize that scientific breakthroughs usually do not 
happen overnight. Research and development is a long-term, on-going 
process. The development of new products and services is the result of 
slow and steady effort and investment. It is for this reason that start 
and stop nature of the R&E credit hinders American progress in 
research. The tax credit is authorized only for a short time--which in 
science is practically no time at all--and then goes to the brink of 
expiration before Congress acts to extend it again. Permanent extension 
of the R&E tax credit would provide badly needed predictability.
  Our country provides very little in the way of direct funding for 
research. While we subsidize basic research to some extent through the 
National Science Foundation and other science agencies, the United 
States depends on the private sector to finance applied research to a 
very substantial degree. This paradigm has worked well. Government does 
not make decisions about what research to fund or make judgments about 
what sectors look promising. Yet, risk-taking, particularly in fields 
such as pharmaceuticals where the cost of developing just one new drug 
can reach into the hundreds of millions of dollars, is an activity that 
we encourage with the R&E tax credit.
  Without the R&E tax credit, American industry is put at a tremendous 
disadvantage relative to foreign competitors whose governments provide 
direct subsidies for research. We simply must not let American 
leadership in science and technology lapse.
  There are enormous benefits from research. Additional investment in 
research yields new jobs--in some cases entire new industries-- 
strengthens our international position, and often results in an 
enhanced quality of life for consumers. Simply put, the tax credit is 
an investment for economic growth and the creation of new jobs.
  Mr. President, my home state of Utah is home to many innovative 
companies that invest a significant percentage of their revenue in 
research and development activities. Scattered across the Wasatch front 
is a large stretch of software and computer engineering firms. This 
area is second only to California's Silicon Valley as a thriving high 
technology commercial area. Utah also has approximately 700 
biotechnology and biomedical firms which employ nearly 9,000 workers. 
These companies were conceived through research and development and 
will continue to grow and thrive only if they can continue to afford to 
take risks.
  In all, Mr. President, there are approximately 80,000 employees 
working in Utah's 1,400 plus and growing technology based firms. 
Research and development is the lifeblood of these Utah firms and 
hundreds of thousands more throughout the Nation that are like them.
  The research and experimentation tax credit has been on the books for 
many years, and there is no doubt that it has proved beneficial to our 
Nation's technology enterprise. But, there is also no doubt that its 
benefits could be even greater if the credit were made permanent and 
the perennial uncertainty with respect to the availability of the 
credit--and thus the cost of doing research--were eliminated.
  With the introduction of this bill, I am pleased to inform you that 
we have included one slight change in this permanent extension. As 
already established, companies whose research efforts do not qualify 
them for the credit are allowed to choose the alternative incremental 
credit. The bill would increase the three alternative incremental 
credit rates by one percentage point each, thereby spurring tax credit 
benefits and encouraging more extensive research and development 
efforts.
  I am aware, Mr. President, that not every company that participates 
in the research and development process benefits from the credit. 
However, I believe that Congress should never permit the credit to 
expire. I urge my colleagues to support this concept of a

[[Page S12132]]

permanent R&E credit by cosponsoring this legislation and support the 
type of research activities that will maintain American technological 
leadership into the 21st century.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1464

       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 (relating to credit for increasing research activities) 
     is amended by striking subsection (h).
       (2) Conforming amendment.--Paragraph (1) of section 45C(b) 
     of such Code is amended by striking subparagraph (D).
       (b) Increase in Alternative Incremental Credit Rates.--
     Subparagraph (A) of section 41(c)(4) of the Internal Revenue 
     Code of 1986 is amended--
       (1) in clause (i), by striking ``1.65 percent'' and 
     inserting ``2.65 percent'',
       (2) in clause (ii), by striking ``2.2 percent'' and 
     inserting ``3.2 percent'', and
       (3) in clause (iii), by striking ``2.75 percent'' and 
     inserting ``3.75 percent''.
       (c) Effective Date.--The amendments made by subsections (a) 
     and (b) shall apply to amounts paid or incurred after June 
     30, 1998.

  Mr. BAUCUS. Mr. President, it is with great pleasure that I join with 
my colleague from Utah, Senator Hatch, and my other colleagues to 
introduce this bill, which is so critical to the ability of American 
businesses to effectively compete in the global marketplace. Companion 
legislation has been introduced in the House by Representatives Nancy 
Johnson and Robert Matsui.
  Our Nation is the world's undisputed leader in technological 
innovation, a position that would not be possible absent U.S. 
companies' commitment to research and development. Investment in 
research is an investment in our Nation's economic future, and it is 
appropriate that both the public and private sector share the costs 
involved, as we share in the benefits. The credit provided through the 
Tax Code for research expenses provides a modest but crucial incentive 
for companies to conduct their research in the United States, thus 
creating high-skilled, high-paying jobs for U.S. workers.
  The R&E credit has played a key role in placing the United States 
ahead of its competition in developing and marketing new products. 
Every dollar that the Federal Government spends on the R&E credit is 
matched by another dollar of spending on research over the short run by 
private companies, and two dollars of spending over the long run. Our 
global competitors are well aware of the importance of providing 
incentives for research, and many provide more generous tax treatment 
for research and experimentation expenses that does the United States. 
As a result, while spending on non-defense R&D in the United States as 
a percentage of GDP has remained relatively flat since 1985, Japan's 
and Germany's has grown.
  The benefits of the credit, though certainly significant, have been 
limited over the years by the fact that the credit has been temporary. 
In addition to the numerous times that the credit has been allowed to 
lapse, last year, for the first time, when Congress extended the credit 
it left a gap of an entire year during which the credit was not 
available. This unprecedented lapse sent a troubling signal to the U.S. 
companies and universities that have come to rely on the Government's 
longstanding commitment to the credit.
  Much research and development takes years to mature. The more 
uncertain the long-term future of the credit is, the smaller its 
potential to stimulate increased research. If companies evaluating 
research projects cannot rely on the seamless continuation of the 
credit, they are less likely to invest on research in this country, 
less likely to put money into cutting-edge technology innovation that 
is critical to keeping us in the forefront of global competition.
  Our country is locked in a fierce battle for high-paying 
technological jobs in the global economy. As more nations succeed in 
creating educationally advanced workforces and join the United States 
as high-technology manufacturing centers, they become more attractive 
to companies trying to penetrate foreign markets. Multinational 
companies sometimes find that moving both manufacturing and basic 
research activities overseas is necessary if they are to remain 
competitive. The uncertainty of the R&E credit factors into their 
economic calculations, and makes keeping these jobs in the United 
States more difficult.
  Although the R&E credit is not exclusively used by high-technology 
firms, they are certainly key beneficiaries of the credit. In my own 
State of Montana, 12 of every 1,000 private sector workers were 
employed by high-tech firms in 1995, the most recent year for which 
statistics are available. Almost 400 establishments provided high-
technology services, at an average wage of $34,500 per year. These jobs 
paid 77 percent more than the average private sector wage in Montana of 
$19,500 per year. Many of these jobs would never have been created 
without the assistance of the R&E credit. Making the credit permanent 
would most certainly provide the incentive needed to create many more 
in the future.
  I urge my colleagues to support this legislation, and look forward to 
working with them and with the administration to make the research and 
experimentation tax credit permanent.
                                 ______