[Congressional Record Volume 145, Number 46 (Tuesday, March 23, 1999)]
[Senate]
[Pages S3126-S3130]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself, Mr. Baucus, Mr. Gorton, Mr. Robb, Mr. 
        Abraham, Mr. Ashcroft, Mrs. Boxer, Mr. Breaux, Mr. Cochran, Mr. 
        Conrad, Mr. DeWine, Mr. Dodd, Mr. Dorgan, Mr. Durbin, Mrs. 
        Feinstein, Mr. Grassley, Mrs. Hutchison, Mr. Inhofe, Mr. 
        Johnson, Mr. Kennedy, Mr. Kerrey, Mr. Lautenberg, Mr. Levin, 
        Mr. Lieberman, Mr. Lugar, Mr. Mack, Ms. Mikulski, Mr. 
        Murkowski, Mrs. Murray, Mr. Rockefeller, Mr. Sarbanes, Mr. 
        Smith of Oregon, Mr. Torricelli, Mr. Warner, Mr. Wyden, and Mr. 
        Gramm):
  S. 680. 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.


        extension of the research and experimentation tax credit

 Mr. HATCH. Mr. President, I am pleased to join with my friend 
Senator Baucus and many more of my esteemed colleagues in the Senate in 
introducing legislation that would permanently extend the research and 
experimentation tax credit.

  As we enter the 21st century, we need to ensure that the United 
States remains the world's undisputed leader in technological and 
scientific innovation. The global economy is becoming increasingly 
competitive. We must move to ensure that our economy does not fall 
behind.
  The research and experimentation tax credit is crucial to stimulating 
economic growth. The President emphasized the value of this credit by 
asking that it be extended in his budget. Additionally, Congress has 
recognized the importance of this tax credit by extending it nine times 
since 1981.
  Now is the time to end the uncertainty surrounding whether or not the 
credit will continue to be extended or be allowed to lapse. We must 
guarantee to American business, our scientists, our engineers, and our 
citizens who depend on technological innovations every day, that we 
will make this tax credit permanent.
  Mr. President, permanence is essential to the effectiveness of this 
credit. Research and development projects typically take a number of 
years and may even last longer than a decade. As our business leaders 
plan these projects, they need to know whether or not they can count on 
this tax credit. The current uncertainty surrounding the credit has 
induced businesses to allocate significantly less to research than they 
otherwise would if they knew the tax credit would be available. This 
uncertainty undermines the entire purpose of the credit. For the 
government and the American people to maximize the return on their 
investment in U.S. based research and development, this credit must be 
made permanent.
  Studies have shown that the R&E tax credit significantly increases 
research

[[Page S3127]]

and development expenditures. The marginal effect of one dollar of the 
R&E credit stimulates approximately one dollar of additional private 
research and development spending over the short-run and as much as two 
dollars of extra investment over the long-run.
  In the business community, the development of new products, 
technologies, medicines, and ideas can result in either success or 
failure. Investments carry a risk. The R&E tax credit helps ease the 
cost of incurring these risks. Whereas foreign nations heavily 
subsidize research with public dollars, the United States has typically 
relied less on direct public funds and more on private sector 
incentives. The R&E tax credit has potential to be an even more 
effective incentive if it were made permanent.

  I am aware that not every company that incurs research and 
development expenditures in the U.S. can take advantage of the R&E tax 
credit. As the credit matures and business cycles change, the current 
credit may be out of reach for some companies. To help solve this 
problem Congress enacted the Alternative Incremental Research Credit to 
help businesses that do not qualify for the R&E tax credit. To improve 
the effectiveness of this alternative credit, we have included a 
proposal to increase it by 1 percent.
  Mr. President, I am aware that a permanent extension of this credit 
will be costly. However, when you consider the value that this 
investment will create for our economy, it is a bargain. Making this 
credit permanent will encourage more companies to locate their research 
activities within the United States. This will lead to more jobs and 
higher wages for U.S. workers. We must recognize that international 
competition is fierce. Many other countries offer significant 
enticements to prompt companies to move research activities within 
their borders. If we fail to ensure at least a level playing field, 
many companies will move their research activities abroad and we will 
lose many precious high-paying jobs.
  Findings from a study conducted by Coopers & Lybrand show that 
workers in every state will benefit from higher wages if the R & E tax 
credit is made permanent. Payroll increases as a result of gains in 
productivity stemming from the credit have been estimated to exceed $60 
billion over the next 12 years. Furthermore, greater productivity from 
additional R&E will increase overall economic growth in every state in 
the Union.
  Mr. President, my home state of Utah is a good example of how state 
economies will benefit from the R&E tax credit. Utah is home to a large 
number of firms who invest a high percentage of their revenue on 
research and development. For example, between Salt Lake City and Provo 
lies the world's biggest stretch of software and computer engineering 
firms. This area, which was named ``Software Valley'' by Business Week, 
is second only to California's Silicon Valley as a thriving high tech 
commercial area.
  In addition, Utah is home to about 700 biotechnology and biomedical 
firms that employ nearly 9,000 workers. These companies were conceived 
in research and development and will not survive, much less grow, 
without continuously conducting R&D activities.
  In all, Mr. President there are approximately 80,000 employees 
working in Utah's 1,400 plus and growing technology based companies. 
Research and development is the lifeblood of these firms and hundreds 
of thousands like them throughout the nation.
  If the credit is allowed to lapse, businesses will not be able to 
factor the credit into their long-term plans. This uncertainty causes 
businesses to under-invest in research. This may slow the development 
of the next computer chip, the next household convenience, the next 
generation of heart monitoring equipment, or a new drug that stops 
cancer. We must ensure stability so that our business leaders can count 
on the credit as they decide how much to invest in research and 
development.
  Research and development is essential for long-term economic growth. 
Innovations in science and technology have fueled the massive economic 
expansion we have witnessed over the course of the 20th century. These 
advancements have improved the standard of living for nearly every 
American. Simply put, the R&E tax credit is an investment in economic 
growth, new jobs, and important new products and processes.
  In conclusion Mr. President, if we decide not to make the R&E tax 
credit permanent, we are limiting the potential growth of our economy. 
How can we expect the American economy to hold the lead in the global 
economic race if we allow other countries to offer faster tracks than 
we do? Making the tax credit permanent will keep American business 
ahead of the pack. It will speed economic growth. Innovations resulting 
from American research and development will continue to improve the 
standard of living for every person in the U.S. and also worldwide.
  Mr. President, simply put, the costs of not making the R&E tax credit 
permanent are far greater than the costs of making it permanent. As the 
next millennium closes in on us, we cannot afford to let the American 
economy slow down. Now is the time to send a strong message to to the 
world that America intends to retain its position as the world's 
foremost innovator.
  I ask that the text of the bill be printed in the Record.
  The bill follows:

                                 S. 680

       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, 1999.

 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. I am particularly pleased that this bill includes as 
original co-sponsors one-third of the members of this body. This bill 
is bi-partisan and bi-cameral. Companion legislation, introduced in the 
House by Representatives Nancy Johnson and Robert Matsui, is co-
sponsored by over one-quarter of the Members of the House.
  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&D 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&D credit is 
matched by another dollar of spending on research over the short run by 
private companies, and $2 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 than 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 only to be extended retroactively, the 1996 extension left a 12-
month gap during which the credit was not available. This unprecedented 
lapse sent a troubling signal to

[[Page S3128]]

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 in research in this country, 
less likely to put money into cutting-edge technological 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 U.S. as high-
technologically 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&D credit factors into their economic calculations, 
and makes keeping these jobs in the U.S. more difficult.
  According to a study conducted by Coopers & Lybrand last year, making 
the R&D credit permanent will provide a substantial positive stimulus 
to investment, wage-growth, productivity, and overall economic activity 
for this country. Payroll increases from gains in productivity are 
estimated to total $64 billion over the period 1998 through 2010. In 
the year 2010 alone, the payroll increase is estimated to total nearly 
$12 billion.
  Also according to the study, gross State Product, which is the basic 
measure of economic activity in a state, will rise overall by nearly 
$58 billion between 1998 and 2010 as a result of a permanent credit. 
Nearly three-fifths of this increase nationally is attributable to 
additional value added by industries that generally do not perform R&D 
themselves, but benefit from the R&D done by companies in other 
industries.
  Gains in payroll and in Gross State Produce are not limited to states 
regarded as centers for technological innovation. Although such regions 
of the country certainly benefit from the credit, each and every state 
will profit in some measurable way from the credit since all sectors of 
the economy--agriculture, mining, basic manufacturing, and high-tech 
services--benefit from productivity improvements resulting from the 
additional research and development caused by the credit.
  My own State of Montana is an excellent example of this economic 
activity. The total increase in payroll due to the R&D credit for the 
years 1998-2010 is estimated to be just over $250 million. The total 
increase in Gross State Product during this same period is expected to 
be $150 million. Neither of these increases place Montana in the top 
tier of States benefiting from the credit. However, looking beyond 
those numbers, the impact of the credit in Montana is substantial. In 
1995, 12 of every 1,000 private sector workers were employed directly 
by high-tech firms in Montana. 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 1995 of 
$19,500 per year. Many of these jobs would never have been created 
without the assistance of the R&D credit. And many more jobs in Montana 
are dependent upon the growth and stability of the high-tech sector. 
Although the cumulative numbers may not be high in comparison with 
other States, the impact of the R&D credit on Montana's economy is 
clear.
  Senator Hatch and I are not newcomers to this issue. We have jointly 
introduced bills to make the R&D credit permanent in numerous previous 
Congresses only to end up with extensions of one year or less. But I 
like to think that this year will be different. The hard work we have 
done to bring our budget into balance is finally beginning to pay off, 
and the projected budget surpluses gives us an opportunity to think 
carefully about how best to allocate our resources. We believe making 
the R&D credit permanent is a wise use of budget dollars because of the 
direct positive impact on economic growth and productivity. This is not 
just a corporate issue. This is a use of tax dollars that benefits all 
of us who are working to expand employment, increase wages and keep our 
Nation at the cutting edge of technological development. I sincerely 
hope we can make this year the year that the R&D credit becomes a 
permanent part of our tax code.
  I urge my colleagues to support this legislation.
 Mr. GORTON. Mr. President, technology is the driving force 
behind the U.S. economy, and investment in research and development is 
the driving force behind technology. Without research and development, 
the Internet would not exist. Without research and development, bone 
marrow transplants would not be saving lives. Without research and 
development, global satellite networks would not bring instantaneous 
news from around the world into our living rooms.
  Quite simply, Mr. President, research and development encourages 
economic growth, creates jobs, and gives U.S. businesses an edge in 
today's competitive world marketplace.
  That is why I am proud to be an original cosponsor of legislation 
introduced today by my colleagues Senator Hatch and Senator Baucus. 
This bill to make permanent the R&D tax credit will enable private 
businesses large and small to spend more of their resources on research 
and development. I have long been a strong supporter of the R&D tax 
credit and am delighted to join the effort to make it permanent.
  As my colleagues know, the credit was first created in 1981 as a way 
to encourage the development of new and innovative commercial 
technologies and has been renewed nine times. Unfortunately, Congress 
has never made the tax credit permanent. Such a year to year 
uncertainty prohibits companies from making long-term R&D plans that 
take the tax credit into account. This lack of permanency leads 
inevitably to a lower rate of investment in research and development. 
That, Mr. President, slows U.S. innovation and economic growth, results 
in fewer jobs for Americans, and places U.S. firms at a competitive 
disadvantage to foreign companies.
  Making the R&D tax credit permanent is one of the easiest and most 
effective measures we can take to boost the effectiveness and 
efficiency of the high tech industry.
  The credit spurs economic growth. A recent study by Coopers & Lybrand 
found that every dollar of tax benefit generates as much as one dollar 
of additional private R and D spending in the short term and as much as 
two dollars of long-term R and D investment. The study concluded that 
over the 1998-2010 period, U.S. companies would spend 41 billion 
dollars more on research and development if the credit were made 
permanent. Further, innovations from that additional R and D investment 
would add more than 13 billion dollars a year to the economy's 
productive capacity by the year 2010.
  The credit creates jobs. Because it is targeted primarily at salaries 
and wages of employees directly involved in research and 
experimentation, it is an incentive for companies to create and sustain 
high-skilled, high-paying jobs.
  The credit helps U.S. companies compete. The R and D Tax Credit 
Coalition, a group of over 1000 American companies and 52 trade 
associations dedicated to making the tax credit permanent, argues that 
the credit is an essential tool for U.S. companies competing against 
foreign firms. Foreign companies often benefit from research and 
development subsidies from their governments. Such incentives lower the 
cost of R and D in foreign countries and give companies receiving the 
subsidies a competitive advantage over U.S. firms. According to the 
Coalition, U.S. corporate research and development spending lags far 
behind Germany and Japan as a percentage of sales. Making the tax 
credit permanent will go a long way to eliminate this disadvantage.
  In my home state of Washington, hundreds of businesses, both large 
and small, use the R&D tax credit to develop new and innovative 
products and create jobs. In fact, Washington is making a name for 
itself as the home of a large and growing high technology industry. 
Last year, the American Electronics Association named Washington a 
``cyber state'' and found that 45 out of every 1,000 private sector

[[Page S3129]]

workers in the state are employed by high-tech firms. According to AEA, 
Washington leads the nation in high-tech wages with an average high-
tech salary in the state of over 66 thousand dollars a year.
  Not surprisingly then, we in Washington view the R&D credit as a 
valued complement to our state's economic development policies. In 
fact, the Coopers and Lybrand study estimates that the credit will 
increase Washington's Gross State Product by $1.4 billion and the 
state's payroll by $1.6 billion over the next decade.
  The Hatch-Baucus legislation to make the R&D tax credit permanent 
will benefit Washington and every other state in the nation. It is a 
smart and effective piece of legislation. It spurs economic growth, 
creates jobs, and helps U.S. companies compete more effectively.
  I am proud to be a cosponsor, and I urge my colleagues to join me in 
supporting innovation in America.
 Mrs. FEINSTEIN. Mr. President, I rise today in support of the 
Research and Experimentation Tax Credit, introduced by the Senators 
from Utah and Montana. This bill addresses what is in my opinion a 
long-standing oversight in the tax code, and will create a permanent 
extension for the Research and Experimentation Tax Credit.
  Indeed, this legislation is necessary because, despite a remarkable 
record of spurring innovation and success--it is regarded by many in 
the business world as the single most effective tool government has to 
help business--the 18 year old research and experimentation tax credit 
inexplicably remains a temporary provision of the tax code.
  Economists have linked the tax credit to steady economic growth and 
productivity. Industry leaders have credited it with spawning private 
enterprise investments. It is especially important to high tech and 
emerging growth industries that are driving our economy. And, because 
it creates jobs and spurs economic activity, the research and 
experimentation tax credit helps to increase the tax base, paying back 
the benefit of the credit.
  Yet, despite its many benefits, for 18 years the research and 
experimentation tax credit has remained a temporary tax provision 
requiring regular renewal. The President's budget request for FY2000 
has, once again, only requested a one year extension of the credit.
  In fact, since 1981, when it was first enacted, the Research and 
Experimentation Tax Credit has been extended nine times. In four 
instances the research credit had expired before being renewed 
retroactively and, in one instance, it was renewed for a mere six 
months.
  This is not a process which is conducive to encouraging business 
investment in the innovative industries--high technology, electronics, 
computers, software, and biotechnology, among others--which will 
provide future strength and growth for the U.S. economy.
  Earlier in this decade California was faced with its severest 
economic downturn since the Great Depression. Today, the California 
economy is healthy and vibrant, and it is so in no small part because 
of the critical role played by innovative research and development 
efforts in nurturing new ``high tech'' industries.
  Today the 150 largest Silicon Valley companies are valued at well-
over $500 billion, $500 billion which did not exist two decades ago. 
Much of this growth is a result of ability of companies to undertake 
long-rage and sustained research in cutting-edge technologies.
  To give just one example: Pericom Semiconductor, located in San Jose, 
California, has expanded from a start-up company in 1990 to a company 
with over $50 million in revenue and 175 employees by the end of last 
year. Pericom is ranked by Deloitte Touche as one of the fastest 
growing companies in Silicon Valley. And, according to a letter I 
received from the Vice President of Finance and administration at 
Pericom, utilization of the research credit has been key to their 
success, enabling them to add engineers, conduct research, and expand 
their technology base.
  I will enter into the Record letters I have received from several 
California companies regarding the benefits of the research and 
experimentation tax credit.
  The new jobs created at companies like Pericom, Genetech, Intel, Lam, 
and Xylinx, along with a host of others, through utilization of the 
research and experimentation tax credit also create additional tax 
revenue, paying back the benefit of the tax credit.
  Research and experimentation is the lifeblood of high technology 
development, and if we want to replicate the success of companies like 
Pericom across the country it is crucial that we create a permanent 
research and experimentation tax credit.
  According to a 1988 study conducted by the national accounting firm 
Coopers & Lybrand, a permanent credit will increase GDP by nearly $58 
billion (in 1998 dollars) over the next decade. The productivity gains 
from a permanent extension will allow workers throughout the nation to 
earn higher wages.
  Whether it is advances in health care, information technology, or 
environmental design, research and development are critical ingredients 
for fueling the process of economic growth.
  Moreover, aggressive research and experimentation is essential for 
U.S. industries fighting to be competitive in the world marketplace.
  Right now American biotechnology is the world leader in developing 
effective treatments and biotech is considered one of the critical 
technologies for the twenty-first century. With other countries 
heavily-subsidizing research and development, it is critical that U.S. 
companies also receive incentive to invest the necessary resources to 
stay on top of breakthrough developments.
  Most biotech research and development efforts are long term projects 
spanning five to ten years, sometimes more. The uncertainty created by 
the temporary and sporadic extensions is incompatible with the basic 
needs of biotech innovation--providing companies with a stable time 
frame to plan, launch, and conduct research activities. In the case of 
a promising but financially intensive research project, such 
unpredictability can make the difference as to whether the project is 
completed or abandoned.
  Anyone who has watched the growth of America's high tech sector in 
the past two decades--much of it in California--has seen first hand how 
research and development investment leads to new jobs, new businesses, 
and even entire new industries. And anyone who has benefitted from 
breakthrough products--from new treatments for genetic disorders to 
cleansing contaminated groundwater--has felt the effect of this tax 
credit.
  Mr. President, I believe that the research and experimentation tax 
credit has proven its worth in creating new technologies and jobs, and 
in growing tax revenues for this country. It should not be imperilled 
by remaining a temporary credit, subject to termination because of the 
uncertainty of a given political moment. I urge my colleagues to 
support this bill and to create a permanent extension for the Research 
and Experimentation Tax Credit.
  I ask that letter in support of the bill be printed in the Record.
  The material follows:


                                                      Pericom,

                                                 October 13, 1998.
     Sen. Dianne Feinstein,
     Washington, DC.
       This is a letter to let you know how we are able to utilize 
     the benefits of the Research and Development Tax Credit.
       Pericom Semiconductor--located in San Jose, California--has 
     expanded from a start-up in 1990 to $50M in revenue with 175 
     people as of September 1998. The savings that we obtain 
     through the utilization of the research credit have enabled 
     us to add engineers to help us expand our technology base. We 
     were ranked as one of the fastest growing companies in 
     Silicon Valley as a result of a Deloitte Touche survey.
       The benefit to our country is that we export about 50% of 
     our revenue to Asia Pacific and Europe. This helps with the 
     balance of trade.
       The engineers that we hire also pay their fair share of 
     taxes so the benefit of the tax credit is paid back and I'm 
     sure are more than revenue neutral. It enables them to buy 
     goods and services which has the spiral effect of making our 
     country that much stronger.
       We respect your efforts on our behalf and view the 
     extension as a must for us. There is no known reason not to 
     pass it.
           Sincerely,
                                               Patrick B. Brennan,
                       Vice President, Finance and Administration.

[[Page S3130]]

     
                                  ____
                                                Texas Instruments,


                                        Silicon Systems, Inc.,

                                    Santa Cruz, CA, March 9, 1999.
     Hon. Diane Feinstein,
     Hart Senate Office Building,
     U.S. Senate, Washington, DC
       Dear Senator Feinstein: I write to you in my capacity as 
     Santa Cruz Fab Director of Texas Instruments. Although we 
     have operations throughout the United States, especially in 
     Texas, we have significant operations in Santa Cruz, San 
     Jose, Tustin and Santa Barbara, California. Thank you for 
     your support for the Research and Development (R&D) tax 
     credit and your efforts to make the credit permanent. We 
     support the bill recently introduced by Reps. Johnson and 
     Matsui. Making the R&D tax credit permanent is our top tax 
     priority for 1999.
       Texas Instruments is a global semiconductor company 
     employing over 34,000 people worldwide. We are the world's 
     leading designer and supplier of digital signal processing 
     (DSP) and analog technologies, the engines driving the 
     digitization of electronics. DSP is the enabler of products 
     and processes yet to be imagined. It is a 3.9 billion dollar 
     market today. It should hit 13 billion dollars within the 
     next five years. If one adds mixed signal and analog 
     products, the total market could be in excess of 60 billion 
     dollars by the year 2002.
       The R&D tax credit provides a significant incentive for 
     companies to perform additional amounts of R&D activity. 
     Given the inherent riskiness of this type of investment, the 
     credit makes for sound tax policy. Because the R&D credit is 
     primarily a wage credit, most of this additional investment 
     is directly connected to the creation and maintenance of 
     high-wage professional jobs.
       Additionally, the creation of new products and broadening 
     the scope of technical knowledge benefits Americans 
     generally. We specialize in digital signal processing 
     solutions, enabling the nation to be more efficient and more 
     productive. Ultimately, the nation's employees will earn 
     higher wages and pay more taxes because Texas Instruments and 
     other California companies are investing in the future 
     through research.
       To best harness the incentive nature of the R&D tax credit, 
     we believe that Congress should make the credit permanent. 
     Texas Instruments and the entire high tech community would 
     like to be able to rely upon the existence of the credit 
     beyond the average six months to 1\1/2\ year extension that 
     has characterized the treatment of the credit since 1986. 
     This would allow us to devote even more resources to R&D 
     activities, and quite possibly hire even more Californians.
       There is another way to look at this: Congress and the 
     Administration need to take steps to ensure that U.S. 
     companies are equipped to compete in the international 
     marketplace. In the semiconductor industry, we have always 
     faced a continuing threat from foreign competitors such as 
     those in Japan, Korea or Taiwan. The R&D tax credit is a step 
     that helps U.S. companies as they compete in the global 
     marketplace. It does this by encouraging R&D activities, 
     which in turn result in greater employment opportunities.
       As you know, high-technology firms have a critical role to 
     play in the future of the nation, and we all need to work to 
     keep businesses like ours here in the U.S. As the world 
     quickly shifts to a service economy, high salary jobs that 
     can sustain the American standard of living are becoming 
     increasingly linked to high value-added, high-tech 
     professions. Future economic growth and high employment 
     require us to continue to nourish innovation while 
     encouraging our employees to be as productive and creative as 
     possible. Our nation has the potential to lead the world into 
     a prosperous new century of growth, given appropriate federal 
     policy--such as making permanent the R&D tax credit.
       Again, thank you for all your previous efforts in support 
     of the R&D tax credit. If there is any additional information 
     that we can provide to you in support of this important 
     provision, please feel free to contact me.
           Sincerely,
                                                  James D. Jensen,
                                  Santa Cruz Fab Director.

 Mr. LIEBERMAN. Mr. President, I am pleased to join Senators 
Hatch and Baucus today in cosponsoring a bill to make the Research and 
Experimentation Tax Credit permanent. Technological innovation is the 
major factor driving economic and income growth in America today. A one 
percent increase in our nation's investment in research results in a 
productivity increase of 0.23 percent. Productivity increases are what 
allow us to increase wages and standards of living. The R&D undertaken 
by our companies today is too important to our economy and our wages to 
allow its encouragement through tax credits to be an unstable, 
haphazard effort varying from one year to the next.
  Moreover, R&D has a significantly higher rate of return at the 
societal level than at the company level. There is a huge spillover 
effect from one person's or one company's innovation to other firms, 
other industries, and benefits to consumers. That is why government has 
a role in supporting R&D both directly through government funded 
research and through tax credits to private industry. All of society 
benefits from increased R&D. I strongly support making the R&D tax 
credit permanent so that our companies can engage confidently in long-
term planning for sustained research investment.
  I believe making the R&D tax credit permanent is a priority. I also 
feel we must strengthen the United States investment in R&D through 
other means as well. Senators Frist, Rockefeller, Domenici, Gramm and I 
are sponsoring a bill, S. 296--with 29 cosponsors--to double federal 
investment in research over the next decade. Government labs and 
University labs undertake much of the basic research in this country. 
We need to nurture these incubators of basic research not only by 
increasing government support for them, but to encourage private sector 
support and financing of them. That is why Senators Domenici, Bingaman, 
Frist and I support some reforms to the R&D tax credit that will 
encourage the private sector to partner with Government and University 
labs. We will shortly be introducing a bill to increase the benefits of 
the R&D credit to all companies, encourage research consortia, and give 
special attention to research investment by small businesses.
  The reason we have been unable to make the R&D tax credit permanent 
is because it requires that the expenditures be scored for five years, 
thereby raising the budget costs. Extending the credit each year, 
sometimes at the last minute and sometimes retroactively, does not 
lower the cost to government, but increases the costs to industry by 
increasing its risk and uncertainty. Let's stop this charade and do 
what's right. Let's make it permanent.
 Mr. ROCKEFELLER. Mr. President, I rise today with my 
colleagues Senator Hatch and Senator Baucus in introducing legislation 
to permanently extend the research and experimentation (R&E) tax 
credit. This credit provides a major incentive to the private sector to 
invest in long-range, high-risk research. It has played, and continues 
to play an important role in fostering private-sector investment in 
research, driving innovation in our technology-based industries.
  Economic studies have shown that for each dollar of lost tax revenue, 
the tax credit stimulates an additional dollar of R&E in the short term 
and two additional dollars in the long term. These research investments 
promote technological innovation, enhance job growth, and increase 
productivity, helping to maintain our nation's quality of life and 
economic strength and well-being.
  The R&E tax credit was enacted in 1981, and since then has been 
temporarily extended nine times, for periods as brief as six months, 
and has been allowed to lapse at least three times before being renewed 
retroactively. This is simply not an acceptable situation, especially 
if we mean to create a business climate which encourages the private 
sector to fund as much R&E as possible in the U.S., and not to move 
these activities off shore to countries that offer more substantial tax 
and financial incentives. This is a particularly critical concern for 
our high-growth, research-intensive industries, such as those in the 
computer, telecommunications, and biotechnology sectors. These 
companies depend on the R&E tax credit to undertake and continue long-
term research projects. To ensure the success of such projects it is 
essential that our support for industry research is both continuous and 
predictable--our future competitiveness in the world marketplace 
depends upon it.
  The federal government is reducing its commitment to research and 
development. We therefore need to encourage the private sector to 
expand its investment in this area. By making the R&E tax credit 
permanent, so that companies can count on its availability from year to 
year in planning their research investments, we create an environment 
conducive to promoting investment in R&E. We must not allow a system 
characterized by the uncertainty of frequent expirations and renewals 
to continue. I therefore urge my colleagues to join me in support of 
this legislation to make the R&E tax credit permanent.
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