[Congressional Record Volume 144, Number 132 (Monday, September 28, 1998)]
[Senate]
[Pages S11007-S11009]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
R&D TAX CREDIT
Mr. BINGAMAN. Mr. President, both the House and the Senate are
working on what is likely to be a final tax bill for this Congress. As
we go about considering tax bills, I hope my colleagues on both sides
of the aisle will be thinking about the long-term economic effects of
the legislation.
Let me start, of course, by making a distinction that should be
obvious to all of us who work around here. That is the distinction
between tax bills that are paid for and tax bills that are not paid for
and that instead obtain the revenue for the tax cuts from the surplus
that we anticipate.
I agree with the President that if we do a tax bill this year--and I
hope we are able to do a tax bill--that we will pay for the tax bill,
that we take whatever revenue is required to make those cuts in taxes,
and that we will find revenue in the current budget with which to do
that.
I do not think the American people want us to go ahead and begin to
spend an anticipated surplus which we have not even realized as yet.
Unfortunately, some of the tax proposals--particularly the one passed
by the House on Saturday--have that very major defect.
But let me get back to the primary subject of my comments, which is
that if we pass tax legislation we need to be thinking about the long-
term economic effects of such legislation. Will such bills enhance our
economy by promoting sound investments and sustained future economic
growth? Or, instead, will they threaten our projected budget surplus
and Social Security without
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really doing anything for the future economic well-being of the
country?
I raise these questions because there is one crucial element of our
Tax Code, more than any other provision in the code, that is directed
at our future economic growth. In all the discussions of taxes that
have occurred over the past few months, that provision appears to have
been given very short shrift. I am referring to the research and
experimentation tax credit, commonly called the R&D tax credit, which
is slated for yet another minimal, temporary extension, the way tax
bills seem to be evolving here today.
As I am sure most of my colleagues are well aware, investment in
research and development is the single largest contributing factor to
our past, present and future economic growth. In an economy that is
increasingly knowledge-based and increasingly globalized, it is also an
important factor in the competitiveness of American industry. Research
leads to improved productivity, economic growth, better jobs and new
technologies--technologies that have spawned entire new industries and
revolutionized the way people do business around the world. But our
research tax policy has not been keeping pace with today's economic
realities.
Research investment is of greater and greater importance to American
industry. But the on-again-off-again research credit is becoming less
and less certain. It was allowed to expire for the ninth time this past
June, and is slated for a renewal for less than 2 years.
Research is being done by large and small businesses in a growing
variety of different industries. The way that the credit is currently
structured, some companies derive incentive value from it, but others,
even though they may be making identical research investments, do not
get value.
Research is also being done increasingly in partnerships. Without
partnerships between industry and Federal laboratories, we would never
have created the Internet. Without collaborations between independent
industry and universities, we would never have biotech. Without
alliances among large and small firms, and in broad-based research
consortia, we would not be seeing the efficiency gains in our
manufacturing base that have been bridging the benefits of
technological advances to every corner of our economy. But the research
credit, as it is currently structured, does little, if anything, to
encourage these partnerships.
Research is changing. It is important to American business. Its
importance to American business is growing. Yet, our policy is stuck in
an outdated status quo.
We have an R&D tax credit that is complicated and difficult for many
companies--especially small companies--to use. We have an R&D tax
credit that offers almost no incentive--less than three cents per
additional dollar of research investment--for many of our,
historically, most innovative research-intensive companies. We have an
R&D tax credit that does nothing to encourage the interchange of ideas
between industry and our great universities, Federal laboratories and
other companies. We have an R&D tax credit that cannot even be relied
upon as an incentive that will last for more than 1 or 2 years at a
time. So the obvious question is: What kind of a commitment is this to
America's economic future?
The U.S. Senate has an opportunity, as we consider tax legislation in
the remaining days of this Congress, to move beyond this sorry status
quo. Improvements to our research tax policy could not come at a more
critical time--while our economy and our Federal finances are in good
order but as we look with some anxiety toward prospects for continued
prosperity.
I introduced legislation this summer--Senate bill 2268--to improve
the research credit. As the ranking member of the Joint Economic
Committee, I then organized a workshop in conjunction with the Senate
Science and Technology Caucus on the topic of R&D tax credits. That
workshop received the views of a broad range of experts from
government, industry and universities who have studied the problems of
the current R&D tax credit, and have proposed changes to make it more
effective.
Invitations to attend the workshop on the tax issues were sent to
legislative assistants from every Member in the Senate. As a result of
that workshop, and the input that I have received from other experts in
research groups and small businesses, I have developed an improved
research and development tax credit proposal that adds to Senate bill
2268 provisions that will make the bill even more effective in
stimulating partnerships through public-benefit research consortia, and
that will provide small, high-tech businesses with tax credits for
patent filing so that small businesses can more effectively defend
their inventions, both here and abroad.
Mr. President, I ask unanimous consent that the text of this new
proposal be printed in the Record following my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See Exhibit 1.)
Mr. BINGAMAN. Some of my colleagues will undoubtedly be concerned
about the cost of improving and making permanent the R&D tax credit,
even though improvements like those in S. 2268 are long overdue. But I
think there is an even more important cost to consider. What will it
cost us if we don't improve the R&D tax credit?
Limiting an extension of the R&D tax credit to 20 months, as has been
proposed in some of the legislation working its way through Congress,
just because of the budgetary scoring consequences, and with full
knowledge that we will be back in 20 months with another temporary
extension that will also be limited by scoring considerations, is a
false economy. The long-term revenue cost to the Treasury of ten one-
year extensions of the credit, or five two-year extensions, or one ten-
year extension are all the same. We are kidding ourselves if we think
we were really saving any money by continuing with these piecemeal,
temporary extensions. In fact, this scoring-driven strategy of repeated
short-term extensions is worse than a fiscal parlor-trick. It is
irresponsible public policy. Why? Because the unpredictable, on-off
nature of the short-term extensions keeps America from fully realizing
the long-term investments that a R&D tax credit should produce. Thus,
we are failing to maximize the public benefits of the tax credit, we
are reducing the degree to which it can stimulate research and
invigorate our economy, and we are losing future tax revenues that
would come from R&D-driven economic growth.
Our current policy, of piecemeal extension of an archaic,
decreasingly effective tax structure, has gone on for 17 years now--a
little longer than I have served in the Senate--and I am not the first
to propose that we take a better approach. My colleague, the senior
Senator from New Mexico, has proposed similar improvements to the R&D
tax credit. Improving and making permanent the R&D tax credit should be
a bipartisan cause. When the Senate considers tax legislation, I look
forward to working on this issue with all of my colleagues who care
about our economic future, and I urge the members of this body to treat
research and development as an urgent priority in our upcoming
deliberations.
Exhibit 1
SEC. 1. PERMANENT EXTENSION OF RESEARCH CREDIT.
(a) In General.--Section 41 of the Internal Revenue Code of
1986 (relating to credit for increasing research activities)
is amended by striking subsection (h).
(b) Conforming Amendment.--Section 45C(b)(1) of the
Internal Revenue Code of 1986 is amended by striking
subparagraph (D).
(c) Effective Date.--The amendments made by this section
shall apply to amounts paid or incurred after June 30, 1998.
SEC. 2. IMPROVED ALTERNATIVE INCREMENTAL CREDIT.
(a) In General.--Section 41 of the Internal Revenue Code of
1986 (as amended by section ____1) is amended by adding at
the end the following new subsection:
``(h) Election of Alternative Incremental Credit.--
``(1) In general.--At the election of the taxpayer, the
credit under subsection (a)(1) shall be determined under this
subsection by taking into account the modifications provided
by this subsection.
``(2) Determination of base amount.--
``(A) In general.--In computing the base amount under
subsection (c)--
``(i) notwithstanding subsection (c)(3), the fixed-base
percentage shall be equal to 85 percent of the percentage
which the aggregate qualified research expenses of the
taxpayer for the base period is of the aggregate gross
receipts of the taxpayer for the base period, and
``(ii) the minimum base amount under subsection (c)(2)
shall not apply.
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``(B) Start-up and small taxpayers.--In computing the base
amount under subsection (c), the gross receipts of a taxpayer
for any taxable year in the base period shall be treated as
at least equal to $1,000,000.
``(C) Base period.--For purposes of this subsection, the
base period is the 6-taxable year period preceding the
taxable year (or, if shorter, the period the taxpayer (and
any predecessor) has been in existence).
``(3) Qualified research.--
``(A) In general.--Notwithstanding subsection (d), the term
`qualified research' means research with respect to which
expenditures are treated as research and development costs
for the purposes of a report or statement concerning such
taxable year--
``(i) to shareholders, partners, or other proprietors, or
to beneficiaries, or
``(ii) for credit purposes.
Such term shall not include any research described in
subparagraph (F) or (H) of subsection (d)(4).
``(B) Financial accounting standards.--
``(i) In general.--Subparagraph (A) shall only apply to the
extent that the treatment of expenditures as research and
development costs is consistent with the Statement of
Financial Accounting Standards No. 2 Accounting for Research
and Development Costs.
``(ii) Significant changes.--If the Secretary determines
that there is any significant change in the accounting
standards described in clause (i) after the date of enactment
of this subsection--
``(I) the Secretary shall notify the Committee on Ways and
Means of the House of Representatives and the Committee on
Finance of the Senate of such change, and
``(II) such change shall not be taken into account for any
taxable year beginning before the date which is 1 year after
the date of notice under subclause (I).
``(C) Transition rule.--At the election of the taxpayer,
this paragraph shall not apply in computing the base amount
for any taxable year in the base period beginning before
January 1, 1999.
``(4) Election.--An election under this subsection shall
apply to the taxable year for which made and all succeeding
taxable years unless revoked with the consent of the
Secretary.''
(b) Conforming Amendment.--Section 41(c) of the Internal
Revenue Code of 1986 is amended by striking paragraph (4) and
redesignating paragraphs (5) and (6) as paragraphs (4) and
(5), respectively.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1998.
SEC. 3. MODIFICATIONS TO CREDIT FOR BASIC RESEARCH.
(a) Elimination of Incremental Requirement.--
(1) In general.--Paragraph (1) of section 41(e) of the
Internal Revenue Code of 1986 is amended to read as follows:
``(1) In general.--The amount of basic research payments
taken into account under subsection (a)(2) shall be
determined in accordance with this subsection.''.
(2) Conforming amendments.--
(A) Section 41(a)(2) of such Code is amended by striking
``determined under subsection (e)(1)(A)'' and inserting ``for
the taxable year''.
(B) Section 41(e) of such Code is amended by striking
paragraphs (3), (4), and (5) and by redesignating paragraphs
(6) and (7) as paragraphs (3) and (4), respectively.
(C) Section 41(e)(4) of such Code (as redesignated) is
amended by striking subparagraph (B) and by redesignating
subparagraphs (C), (D), and (E) as subparagraphs (B), (C),
and (D), respectively.
(D) Clause (i) of section 170(e)(4)(B) of such Code is
amended by striking ``section 41(e)(6)'' and inserting
``section 41(e)(3)''.
(b) Basic Research.--
(1) Specific commercial objective.--Section 41(e)(4) of the
Internal Revenue Code of 1986 (relating to definitions and
special rules) is amended by adding at the end the following
new subparagraph:
``(F) Specific commercial objective.--For purposes of
subparagraph (A), research shall not be treated as having a
specific commercial objective if all results of such research
are to be published in such a manner as to be available to
the general public prior to their use for a commercial
purpose.''
(2) Exclusions from basic research.--Section 41(e)(4)(A) of
the Internal Revenue Code of 1986 (as redesignated by
subsection (a)) is amended by striking clause (ii) and
inserting the following:
``(ii) basic research in the arts or humanities.''
(c) Expansion of Credit to Research at Federal
Laboratories.--Section 41(e)(3) of the Internal Revenue Code
of 1986 (as redesignated by subsection (a)(2)(C) of this
section) is amended by adding at the end the following new
subparagraph:
``(E) Federal laboratories.--Any organization which is a
federal laboratory within the meaning of that term in section
4(6) of the Stevenson-Wydler Technology Innovation Act of
1980 (15 U.S.C. 3703(6)).''
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1998.
SEC. 4. CREDIT FOR EXPENSES ATTRIBUTABLE TO CERTAIN
COLLABORATIVE RESEARCH CONSORTIA.
(a) Credit for Expenses Attributable to Certain
Collaborative Research Consortia.--Subsection (a) of section
41 of the Internal Revenue Code of 1986 (relating to credit
for increasing research activities) is amended by striking
``and'' at the end of paragraph (1), by striking the period
at the end of paragraph (2) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(3) 20 percent of the amounts paid or incurred during the
taxable year (including as contributions) to a qualified
research consortium.''
(b) Qualified Research Consortium Defined.--Subsection (f)
of such Code is amended by adding at the end the following
new paragraph:
``(6) Qualified research consortium.--The term `qualified
research consortium' means any organization which--
``(A) either--
``(i) is described in section 501(c)(3) and is exempt from
taxation under section 501(a) and is organized and operated
primarily to conduct scientific or engineering research; or
``(ii) is organized and operated primarily to conduct
scientific or engineering research in the public interest
(within the meaning of section 501(c)(3));
``(B) is not a private foundation;
``(C) to which at least 5 unrelated persons paid or
incurred (including as contributions), during the calendar
year in which the taxable year of the organization begins,
amounts to such organization for scientific or engineering
research; and
``(D) to which no single person paid or incurred (including
as contributions) during such calendar year more than 50
percent of the total amounts received by such organization
during such calendar year for scientific or engineering
research.
All persons treated as a single employer under subsection (a)
or (b) of section 52 shall be treated as related persons for
purposes of subparagraphs (C), and as a single person for
purposes of subparagraph (D).''
(c) Conforming Amendment.--Paragraph (3) of section 41(b)
of such Code is amended by striking subparagraph (C).
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1998.
SEC. 5. IMPROVEMENT TO CREDIT FOR SMALL BUSINESSES.
(a) Assistance to Small and Start-Up Businesses.--The
Secretary of the Treasury or his delegate shall take such
actions as are appropriate to--
(1) provide assistance to small and start-up businesses in
complying with the requirements of section 41 of the Internal
Revenue Code of 1986, and
(2) reduce the costs of such compliance.
(b) Repeal of Limitation on Contract Research Expenses Paid
or Incurred to Small Businesses.--Section 41(b)(3) of the
Internal Revenue Code of 1986 (as amended by section 4) is
amended by adding at the end the following new subparagraph:
``(C) Payments to eligible small businesses.--
``(i) In general.--Subparagraph (A) shall be applied by
substituting `100 percent' for `65 percent' with respect to
amounts paid or incurred by the taxpayer to an eligible small
business.
``(ii) Eligible small business.--For purposes of this
subparagraph, the term `eligible small business' means a
small business with respect to which the taxpayer does not
own (or is not considered as owning within the meaning of
section 318) 50 percent or more--
``(I) if the small business is a corporation, of the
outstanding stock of the corporation (either by vote or
value), and
``(II) if the small business is not a corporation, of the
capital or profits interest in the small business.
``(iii) Small business.--For purposes of this
subparagraph--
``(I) In general.--The term `small business' means, with
respect to any calendar year, any person if such person
employed an average of 500 or fewer employees on business
days during either of the 2 preceding calendar years. For
purposes of the preceding sentence, a preceding calendar year
may be taken into account only if the person was in existence
throughout the year.
``(II) Startups, controlled groups, and predecessors.--
Rules similar to the rules of subparagraphs (B) and (D) of
section 220(c)(4) shall apply for purposes of this clause.''
(c) Credit for Patent Filing Fees.--Section 41(a) of the
Internal Revenue Code of 1986 (as amended by section 4) is
amended by striking ``and'' at the end of paragraph (2), by
striking the period at the end of paragraph (3) and inserting
``, and'', and by adding at the end the following new
paragraph:
``(4) 20 percent of the patent filing fees paid by a small
business (as defined in subsection (b)(3)(C)(iii)) to the
United States or to any foreign government.''
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1998.
Mr. President, I yield the floor and I suggest the absence of a
quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. KYL. Madam President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER (Mrs. Hutchison). Without objection, it is so
ordered.
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