[Congressional Record Volume 144, Number 60 (Wednesday, May 13, 1998)]
[Senate]
[Pages S4823-S4824]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DOMENICI (for himself and Mr. Frist):
  S. 2072. A bill to amend the Internal Revenue Code of 1986 to enhance 
the global competitiveness of United States businesses by permanently 
extending the research credit, and for other purposes; to the Committee 
on Finance.


                    research tax credit legislation

  Mr. DOMENICI. Mr. President, advanced technologies drive a 
significant part of our nation's economic strength. Our economy and our 
wonderful standard of living depend on a constant influx of new 
technologies, processes, and products from our industries.
  Many countries can provide labor at lower costs than the United 
States. As any new product matures, competitors using overseas labor 
can frequently find a way to undercut our production prices. We 
maintain our lead by constantly improving our products through 
encouragement of innovation.
  The majority of new products require industrial research and 
development to reach the market stage. I want to encourage that 
research and development to create new products to ensure that our 
factories stay busy and that our workforce stays fully employed at high 
salaried jobs. I want more of our large multi-national companies to 
select the United States as the location for their R&D. R&D done here 
creates American jobs. And frequently the benefits of R&D in one area 
apply in another area; I want those spin-off benefits in this country, 
too.
  The federal government has used the Research Tax Credit to encourage 
companies to perform research. But many studies document that the 
present form of this Tax Credit is not providing as much stimulation to 
industrial R&D as it could. Today, I introduce legislation to improve 
the Research Tax Credit.
  The single most important change I'm proposing in the Research Tax 
Credit is to make it permanent. The credit has never been permanent, 
since Congress created it in 1981. Many studies point out that the 
temporary nature of the Credit has prevented companies from building 
careful research strategies. A recent study by Coopers and Lybrand 
claimed a $41 billion stimulus for the economy by 2010, with $13 
billion added to the economy's productive capacity by 2010. Many of my 
Senate colleagues have endorsed legislation that includes this critical 
action, more than twenty at last count.
  My legislative proposal goes further. The current Credit references a 
company's research intensity back to their level in the 1984-88 time 
period. That time period is too outdated to meet today's dynamic market 
conditions. Many companies now are operating in dramatically different 
markets, many with totally new product lines. My legislation allows a 
company to choose a four year period in the last ten years that best 
matches their own needs. This allows companies to tailor and optimize 
research strategies to match current market conditions.
  The current approach has a provision that severely restricts the 
ability of many start-up companies to benefit from the full impact of 
the Credit. Recent analysis shows that 5 out of 6 start-up companies 
receive reduced benefits because of a provision that limits their 
allowable increase in research expenditures to half of their current 
expenditures. I'm concerned when start-up companies aren't receiving 
full benefit from this Credit. These are just the companies that tend 
to drive the innovative cycle in this country, they are the ones that 
frequently bring out the newest leading-edge products. My legislation 
allows start up companies for their first ten years to take full credit 
for their increases in research costs.
  My legislation addresses several other shortcomings in the current 
Credit. Now there is a Basic Research Credit'' allowed, but rarely 
used. It is defined to include only research with ``no commercial 
interest.'' Now, I don't know too many companies that want to support--
much less admit to their stockholders that they are supporting--
research with no commercial interest. The idea of this clause was to 
encourage support of long term research; the kind that benefits far 
more than just the next product improvement. This is the kind of 
research that can enable a whole new product or service. We need to 
encourage this long term research. My legislation adds an incentive for 
this type of research by including any research that is done for a 
consortium of U.S. companies or any research that is destined for open 
literature publication. These two additions will include a lot more 
long term research that has future product applications. I've also 
allowed this credit to apply to research done in national labs, so 
companies can select the best source of research for any particular 
project.
  And finally my legislation recognizes the importance of encouraging 
companies to use research capabilities wherever they exist in the 
country, whether

[[Page S4824]]

in other businesses, universities, or national labs. The current credit 
disallows 35% of all expenses invested in research performed under an 
external contract--my legislation allows all such expenses to apply 
towards the Credit. This should encourage creation of partnerships, 
where different partners can leverage their individual strengths. These 
partnerships enable our companies to perform research more efficiently, 
that can further strengthen our economy.
  In summary, Mr. President, this proposed Bill significantly 
strengthens incentives for private companies to undertake search that 
leads to new processes, new services, and new products. The result is 
stronger companies that are better positioned for global competition. 
Those stronger companies will hire more people at higher salaries with 
real benefits to our national economy and workforce.
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