[Congressional Record Volume 145, Number 63 (Tuesday, May 4, 1999)]
[Senate]
[Pages S4669-S4673]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DOMENICI (for himself, Mr. Bingaman, Mr. Frist, Mr. 
        Lieberman, and Ms. Snowe):
  S. 951. A bill to amend the Internal Revenue Code of 1986 to 
establish permanent tax incentives for research and development, and 
for other purposes; to the Committee on Finance.


     private sector research and development investment act of 1999

  Mr. DOMENICI. Mr. President, today I am joining my cosponsors, 
Senators Bingaman, Frist, Lieberman, and Snowe, in introducing the 
Private Sector Research and Development Investment Act of 1999.
  This bill makes the research tax credit permanent and significantly 
improves the structure of that credit. Many Senators are for this 
extension, and it is high time, and for the permanentization of this 
credit.
  This also adjusts the credit to today. That credit was put in place 
many years ago, and much of what it does doesn't fit today's industrial 
base, including many startup companies that cannot take the right kind 
of credit.
  We have made some changes which will make it cost a little bit more, 
but I think the Finance Committee should take a look at some of the 
changes that are in this Domenici-Bingaman bill, because it will make 
the credit more effective and more available.
  In March of 1998, 150 of our Nation's top decisionmakers met at MIT 
for the first national innovative summit. The summit leaders included 
CEOs, university presidents, labor leaders, Governors, Members of 
Congress, and senior administrative officials.
  In essence, they conclude that in order to keep the United States of 
America on the cutting edge of research that can be applied to 
innovative things for America's future and for our businesses, that we 
must make this tax permanent, that dollar for dollar it is the best 
investment in both general research and specific research to keep 
America strong and competitive in the world.
  When those people say dollar for dollar it is the most effective, 
they are saying it is more effective than programmatic assistance to 
research, which obviously is very necessary, and we continue to expand 
upon and have it grow. But if you don't make this permanent, you are 
losing a lot of research by American businesses, No. 1. If you don't 
correct it, you will lose the effectiveness among companies that need 
it the most. And third, you will see to it that more, rather than less, 
American companies do research overseas.
  Research jobs are great jobs. They are just as much a part of 
America's basic prosperity as are the jobs that come from that research 
by way of products or activities.
  Mr. President, advanced technologies drive a significant part of our 
nation's economic strength. Our economy and our standard of living 
depend on a constant influx of new technologies, processes, and 
products from our industries.
  Many countries provide labor at lower costs than the United States. 
Thus, as any new product matures, competitors using overseas labor 
frequently find ways to undercut our production costs. We maintain our 
economic strength only by constantly improving our products through 
innovation. Maintaining and improving our national ability to innovate 
is critically important to the nation.
  The majority of new products requires 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 of their R&D. R&D done here creates 
American jobs. And since frequently the benefits of research in one 
area apply in another area, I want those spin-off benefits here, too.
  Congress created 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, we're introducing legislation to improve the 
Research Tax Credit.
  In March of 1998, 150 of our nation's top decision makers met at MIT, 
for the first National Innovation Summit. The Summit included corporate 
CEO's, university presidents, labor leaders, governors, members of 
Congress, and Senior Administration officials.
  At the Summit, these experts discussed the health of the future 
national research base. More than three-quarters of them thought that 
the quality of that base would be no better or worse than it is today, 
with nearly one third projecting that it would be weaker.
  The Summit participants singled out the Research Tax Credit as the 
policy measure with the greatest potential for a positive near-term 
impact. The Council on Competitiveness, who co-sponsored that Summit, 
stated that ``making the [Research] Tax Credit permanent reflected a 
widely share consensus among leaders whose companies and universities 
contribute decisively to the nation's economy.''
  The single most important change in our bill is to make the Credit 
permanent. Many studies point out that the temporary nature of the 
Credit has prevented companies from building careful research 
strategies.
  Many of my colleagues in Congress have also expressed interest in 
making the Credit permanent. But we're urging them to go beyond that 
action and, at the same time, address shortcomings that have been 
identified in the current Credit. I want to use the current enthusiasm 
for permanence to also craft a Credit that will better serve the 
nation.
  For example, the current Credit references a company's research 
intensity back to 1984-88. That's too outdated to meet today's dynamic 
market conditions. Many companies are involved today in products that 
weren't even invented in 1984.
  Our legislation allows a company to base their credit on their 
research intensity averaged over the preceding eight years. It also 
allows companies to stay with the current formulation of the Credit if 
they prefer.
  Our bill builds other improvements into the Credit as well. For 
example, the Alternative Research Credit component has been criticized 
because it only rewards the maintenance level of a company's research, 
it does not provide significant motivation to increase research 
intensity. With our proposed changes, the Alternative Credit now 
incorporates the same 20 percent motivation for increased research 
intensity that is found in the regular Credit--this is a major 
improvement. We also increase the base level of the Alternative Credit 
significantly.
  The current Credit has a provision that severely restricts the 
ability of start-up companies to fully benefit. Analysis by the 
Congressional Research Service showed that 5 our of 6 start-up 
companies received reduced benefits because of a current provision that 
limits their allowable increase in research expenditures.
  I'm concerned when start-up companies aren't receiving full Credit. 
These are just the companies that drive the innovative cycle in this 
country; they are the ones that frequently bring out the newest 
leading-edge products. Our legislation thus drops this limitation and 
introduces additional help for start-up businesses.
  Our legislation addresses several other shortcomings in the current 
Credit as well. Now there is a ``Basic Research Credit'' allowed, but 
rarely used. This should be encouraging research conducted at 
universities.
  But that part of the Credit is now defined to include only research 
that does ``not have a specific commercial objective.'' There aren't 
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, which is a fine idea.
  This is the kind of research that benefits far more than just the 
next product improvement. It can enable a whole

[[Page S4670]]

new product or service and we need to encourage it.
  Our legislation adds major incentives for basic research by dropping 
the requirement that only increments above a baseline can be used and 
by including any research that is done for a consortium of U.S. 
companies or any research that is destined for open literature 
publication. We're also allowing this Credit to apply to research done 
in national labs.
  And finally our legislation recognizes the importance of encouraging 
companies to use research capabilities wherever they exist in the 
country, whether in other businesses, universities, or national labs. 
The current credit disallows 35% of all expenses for research performed 
under an external contract--our legislation allows all such expenses to 
apply towards the Credit when the research is performed at a 
university, small business, or national laboratory.
  In summary, this bill incorporates all the improvement suggested in 
other bills that primarily make the credit permanent and provide some 
increase in the alternative credit. But this bill goes further and 
corrects weaknesses in the current formulation of the Credit. I want to 
seize this opportunity to make the Research Tax Credit a tool that will 
truly meet the goals for which it was established.
  The fact that this bill addresses significant shortcomings in the 
current Credit has not gone unnoticed. Spokesman for several groups 
that endorse this bill are here with us today. After Senator Bingaman 
speaks, I'll invite representatives from the Council on 
Competitiveness, the National Association of State Universities and 
Land Grant Colleges, the National Coalition for Advanced Manufacturing, 
and the American Association of Engineering Societies to add their 
perspectives.
  With this new bill, we will significantly strengthen incentives for 
private companies to undertake research that leads to new processes, 
new services, and new products. The result will be stronger companies 
that are better positioned for global competition. Those stronger 
companies will hire people at higher salaries with real benefits to our 
national economy and workforce.
  I ask unanimous consent that the text and a summary of the bill, 
section by section, be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 951

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Private Sector Research and 
     Development Investment Act of 1999''.

     SEC. 2. 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, 1999.

     SEC. 3. IMPROVED ALTERNATIVE INCREMENTAL CREDIT.

       (a) In General.--Section 41 of the Internal Revenue Code of 
     1986 (relating to credit for increasing research activities), 
     as amended by section 2, 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 
     section 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 80 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.
       ``(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 8-taxable year period preceding the 
     taxable year (or, if shorter, the period the taxpayer (and 
     any predecessor) has been in existence).
       ``(3) 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 
     by 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, 
     1999.

     SEC. 4. 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 (relating to credit allowable 
     with respect to certain payments to qualified organizations 
     for basic research) 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 by 
     subparagraph (B), 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), as redesignated by subsection (a)(2)(B), is 
     amended by adding at the end the following new subparagraph:
       ``(E) Specific commercial objective.--For purposes of 
     subparagraph (A), research shall not be treated as having a 
     specific commercial objective if the results of such research 
     are to be published in a timely manner as to be available to 
     the general public prior to their use for a commercial 
     purpose.''
       (2) Exclusions from basic research.--Clause (ii) of section 
     41(e)(4)(A) of such Code (relating to definitions and special 
     rules), as redesignated by subsection (a), is amended to read 
     as follows:
       ``(ii) basic research in the arts and humanities.''
       (c) Expansion of Credit to Research Done at Federal 
     Laboratories.--Section 41(e)(3) of the Internal Revenue Code 
     of 1986, as redesignated by subsection (a), is amended by 
     adding at the end the following new subparagraph:
       ``(E) Federal laboratories.--Any organization which is a 
     Federal laboratory (as defined 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, 
     1999.

     SEC. 5. 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), 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 by the 
     taxpayer in carrying on any trade or business of the taxpayer 
     during the taxable year (including as contributions) to a 
     qualified research consortium.''
       (b) Qualified Research Consortium Defined.--Subsection (f) 
     of section 41 of the Internal Revenue Code of 1986 is amended 
     by adding at the end the following new paragraph:
       ``(6) Qualified research consortium.--The term `qualified 
     research consortium' means any organization--
       ``(A) which is--
       ``(i) described in section 501(c)(3) and is exempt from tax 
     under section 501(a) and is organized and operated primarily 
     to conduct scientific or engineering research, or
       ``(ii) organized and operated primarily to conduct 
     scientific or engineering research in the public interest 
     (within the meaning of section 501(c)(3)),
       ``(B) which is not a private foundation,
       ``(C) to which at least 5 unrelated persons paid or 
     incurred during the calendar year in which the taxable year 
     of the organization begins amounts (including as 
     contributions) 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 an amount equal 
     to 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 subparagraph (C) and as a single person for 
     purposes of subparagraph (D).''

[[Page S4671]]

       (c) Conforming Amendment.--Paragraph (3) of section 41(b) 
     of the Internal Revenue Code of 1986 is amended by striking 
     subparagraph (C).
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 6. IMPROVEMENT TO CREDIT FOR SMALL BUSINESSES AND 
                   RESEARCH PARTNERSHIPS.

       (a) Assistance to Small and Start-Up Businesses.--The 
     Secretary of the Treasury or the Secretary's 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 
     to Small Businesses, Universities, and Federal 
     Laboratories.--Section 41(b)(3) of the Internal Revenue Code 
     of 1986, as amended by section 5(c), is amended by adding at 
     the end the following new subparagraph:
       ``(C) Amounts paid to eligible small businesses, 
     universities, and federal laboratories.--
       ``(i) In general.--In the case of amounts paid by the 
     taxpayer to an eligible small business, an institution of 
     higher education (as defined in section 3304(f)), or an 
     organization which is a Federal laboratory (as defined in 
     subsection (e)(3)(E)), subparagraph (A) shall be applied by 
     substituting `100 percent' for `65 percent'.
       ``(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 (within the meaning of section 318) 50 percent or more 
     of--

       ``(I) in the case of a corporation, the outstanding stock 
     of the corporation (either by vote or value), and
       ``(II) in the case of a small business which is not a 
     corporation, the capital and profits interests of 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 the annual 
     average number of employees employed by such person during 
     either of the 2 preceding calendar years was 500 or fewer. 
     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 5(a), 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 or incurred 
     by a small business (as defined in subsection (b)(3)(C)(iii)) 
     to the United States or to any foreign government in carrying 
     on any trade or business.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.
                                  ____


               Domenici-Bingaman Research Tax Credit Bill

       This bill addresses two broad goals: establishes a 
     permanent Credit, and strengthens the formulation of the 
     Credit.
       The Bill enhances the Credit received by all users of the 
     regular Research Tax Credit. Thus, all companies benefiting 
     from its current formulation are positively impacted. The 
     changes in the Credit are focused in the Alternative Credit 
     and Basic Research Credit portions of the current Credit 
     legislation and represent significant enhancements to these 
     options.
       The Bill addresses several concerns with the existing 
     Credit: base period used for the regular credit, 1984-88, is 
     out-dated; 50% rule precludes most startups from gaining full 
     credit; basic research credit is very difficult to use, and 
     alternative credit provides no strong incentive for increased 
     research intensity.
       In addition to permanence, the Bill increases the 
     maintenance level of the alternative credit to 4%. (Thus the 
     Bill meets the goals of some groups who favor simply 
     permanence and 1% additional to the alternative credit). In 
     addition, the bill; establishes a 20% marginal rate for 
     increased intensity for users of the alternative credit; 
     changes the base period for alternative credit users to an 8 
     year average; eliminates the 50% rule for users of the 
     alternative credit; encourages industrial partnerships with 
     universities and national labs; expands definition of basic 
     research to include all published work; enables basic 
     research at FFRDCs to count toward their basic research 
     credit; qualifies 100% of contract research accomplished at 
     universities, national labs, and small businesses; encourages 
     establishment of research-driven consortia by providing 20% 
     credit for their research expenses; provides a phase-in of 
     credit for start-up businesses, and enables small businesses 
     to count patent filing fees toward research expenses.
       With these enhancements, the Domenici-Bingaman Bill 
     provides a permanent Research Tax Credit that address 
     shortcomings in the current formulation of the Credit. 
     Furthermore, the Bill meets the goals of constituents who 
     favor only permanence or only permanence plus an increase in 
     the alternative credit.

                                 SUMMARY
Joint Tax 10-yr evaluations:
    Section II: Make the Credit permanent....................    $26.3 B
    Section III: Improve the Alternative Investment Credit,          3.8
     AIC, by increasing the Credit allowed for the base
     maintenance level of R&E expenditures, and add an
     incremental incentive package onto the AIC. Create a
     floating 8-year base period for the AIC. Drop the
     ``50%'' rule for the AIC. Insert a transition approach
     to help startups........................................
    Section IV: Provide a flat credit for basic research             5.0
     expenditures at universities, small businesses, and
     national labs. Improve definition of basic research.....
    Section V: Provide flat credit for consortia-based               0.1
     research................................................
    Section VI: Increase the allowance for contract research      \1\3??
     conducted at universities, small businesses, and
     national labs from 65% to 100%. Add patent filing
     expenses as qualified expenditures for small businesses.
      Total..................................................       38.2
 
 
\1\ Joint Tax did not score Section VI yet. A version of Section VI was
  in S. 2072 last year, except that it increased the allowance for
  everybody, including large businesses. They scored that at $4.8B. The
  score this year ``has to'' be well below $4.8B, I used $3 for talking
  purposes.

                       Notes--To Joint Tax Scores

       Section II duplicates Senator Boxer's S. 195 by just making 
     the Credit permanent, Representative Sensenbrenner has the 
     same version in the House.
       Sections II and III together duplicate and extend the 
     approach of the Baucus/Hatch S. 680 with 36 cosponsors and 
     the Johnson/Matsui Bill in the House. These two sections give 
     permanence plus increase the AIC by slightly more than 1%. 
     They also add major enhancements to the AIC by establishing 
     an option for companies to realize a 20% incremental benefit. 
     The Baucus/Hatch version is supported by the R&D Tax 
     Coalition, using their mantra of ``Permanence plus 1%.'' 
     Sections II and III do everything that the R&D Tax Coalition 
     wants and a lot more.
       Section IV is expensive at $5 Billion, but gains the 
     strongest possible support from universities. This section 
     changes the definition of basic research, but more important, 
     lets contract research at a university (+SB or lab) be 
     treated as a flat 20% credit, not above an incremental base. 
     This is a tremendous incentive to fund expenditures for basic 
     research at universities.
       Section V encourages consortia to fund research. Senator 
     has encouraged consortia formation in other ways, this 
     continues his leadership in this area.
       Section VI is a further major incentive for companies to 
     fund research at universities, labs, and small businesses.

  Mr. BINGAMAN. Mr. President, I am pleased to join with my co-
sponsors, Senators Domenici, Lieberman, Frist, and Snowe in introducing 
the Private Sector Research and Development Investment Act of 1999. 
This bill will finally make the Research and Experimentation Tax Credit 
permanent, a provision of the federal tax code that was first enacted 
in 1981, and has been extended 9 times since.
  In addition to the provision of permanence, our bill has other 
improvements that I believe will address many of the shortcomings of 
existing law, and will bring the code more in synch with the ways 
industry is performing R&D today. But before I speak to some of those 
provisions, I would like to spend a little time discussing why I think 
we need to enact this legislation now.
  I think it is fair to say that the nation's economy owes much of its 
resurgence to the increases in productivity attributable to the 
infusion of high technology products and services. Our nation is today 
in the enviable position of not only having the greatest access to 
these products, but also being the primary provider of these products 
for the rest of the world.
  These capabilities have enabled American businesses to be in a 
position of world leadership in areas as diverse as medical and bio 
technologies, microelectronics, and financial services.
  In order for us to insure that the economic engine continues to run 
at peak form, we must assure that there is a continual infusion of new 
technologies

[[Page S4672]]

that will spawn the products and services of the future market. Many 
economists state that the best way to do this is to create a stable 
incentive for research investment and an environment where businesses 
have the flexibility to choose among all the options available to 
perform the research. A policy which achieves these goals will provide 
businesses with the long-term incentive to invest in both the research 
and the people that will create the next generation of commercially 
successful products.
  That is exactly what the ``Private Sector Research and Development 
Investment Act of 1999'' does. First, it makes Section 41 of the 
Internal Revenue Code permanent, creating a stable long-term 
environment for investment. But it goes beyond that.
  Present law does not allow all companies to benefit equally from the 
Tax Credit. Some companies, simply as a result of where they were in 
the business cycle in the late 80's, find that they cannot attain the 
full benefit of the credit. And, if the company did not exist at all in 
the 80's, as is the case with most of the Internet and many of the 
biotech start-up firms, there is simply no way at all for them to 
access the full credit rate. This is simply not fair. Our bill proposes 
to correct that inequity by making the 20% marginal rate available to 
all companies that are growing their research investment.
  With much of the nation's research talent residing in our 
universities and federal laboratories, we are proposing to extend the 
full Tax Credit for research investments companies make in those 
institutions.
  I am particularly pleased with the part of this provision that 
provides a more cost effective way for companies to invest in the 
education of our future generation of scientists and engineers at our 
universities. If this bill becomes law, as many as 3000 additional 
masters and doctoral level engineers and scientists could be produced 
each year, with up to 1000 of these being women and minorities, all at 
no additional cost to businesses.

  I fully expect that the ``Private Sector Research and Development 
Investment Act of 1999'' will accelerate business investment in 
universities, growing the number of trained scientists and engineers 
even faster. At a time when there has been much debate over providing 
additional employment visas to foreign engineers, this bill provides 
one mechanism for educating qualified Americans to fill these high tech 
jobs.
  As the cost of doing research continues to escalate, and companies 
find it more difficult to go it alone, our bill proposes that the 
research investments companies make in research consortia with other 
businesses, universities, and federal laboratories be fully available 
for the Tax Credit. I have seen firsthand, at places like Sandia and 
Los Alamos National Laboratories, the results of consortia partnerships 
between industry and our national labs, and I believe that it is in our 
nation's best interest to promote these research arrangements.
  All of our studies indicate that small businesses are the ``high 
test'' fuel of the nation's economy, producing more and highly paid 
jobs. Yet it is this group of companies that have the hardest time in 
accessing the Tax Credit under existing law. We propose to modify the 
law so that small businesses have greater benefit in their early years, 
when the value of the credit can have the greatest impact on a rapidly 
growing, but often cash-limited, company.
  Finally, to assure that these small businesses are truly able to 
compete in the global market and to protect their intellectual assets, 
we are proposing that the full value of the Tax Credit be applied to 
their patent filing fees, both here and abroad.
  In speaking with owners of small, high tech businesses in New Mexico, 
I hear that anything we can do to increase the capital funds available 
to these businesses as they are starting up is critical to their 
success. These two special provisions for small businesses are positive 
steps in that direction.
  Mr. President, many of my fellow Senators and Members of the House 
have already endorsed the concept of a permanent R&D Tax Credit. With 
that base of enthusiasm already in place, I encourage my colleagues to 
seize the opportunity to move forward and complete the job. Let's make 
it permanent, and let's make it right.
  Mr. LIEBERMAN. Mr. President, I am pleased to join Senators Domenici 
and Bingaman today in supporting the Private Sector Research and 
Development Investment Act of 1999. This bill recognizes that we are 
moving toward a New Economy and supports the engine of that New 
Economy. Let me explain.
  In this decade, we have returned to our nation's historic growth rate 
of 3% plus growth. We haven't seen this in 30 years, but now we are 
back there again. We know what the last few years of growth feel like--
America is starting to feel like an opportunity society again. We are 
moving toward some fundamental changes in our economic structure, 
toward a knowledge-based economy and further away from a resource-based 
economy. Key to these high growth rates has been overall productivity 
gains that are back in the 2% range, which has enabled the United 
States to experience real growth and real growth in incomes without 
significant inflation. A significant part of our productivity gains 
have come from gains in manufacturing productivity, which has 
approached 4% in each of the past three years. These manufacturing 
gains come directly from innovation, and in recent years these are 
largely driven by innovation in information technology--one of the most 
amazing results of R&D in this century from the invention of the 
transistor over 50 years ago to the development of the Internet today. 
And it looks like we are starting to get noticeable productivity gains 
in our services sector as well, also driven by information technology. 
The digital revolution is affecting every sector of our economy. As 
Andy Grove, Chairman of Intel, said, ``In five years, there will be no 
Internet companies. Every company will be an Internet company,'' or it 
won't be in business.
  Some analysts look at the stock market today and compare it to the 
1600's Dutch tulip bulbs investment bubble, maybe the largest bubble of 
all time, and its subsequent crash. The difference is that tulip bulbs 
did not fundamentally alter the means of communication and increase 
productivity as the Internet does.
  Pharmaceuticals and health care is another area in which our 
country's investment in R&D has catapulted us above our competitors. A 
recent study from the Department of Commerce found that the United 
States is decades ahead of other countries in the pharmaceutical and 
health related industries directly because of our investment in R&D. In 
the past 50 years, researchers from U.S. pharmaceutical companies have 
discovered and developed breakthrough treatments for asthma, heart 
disease, osteoporosis, HIV/AIDS, stroke, ulcers, and glaucoma. And they 
have developed vaccines against previously common causes of infant 
death including polio, rubella, influenza B and whooping cough. Why is 
the U.S. pharmaceutical industry the number one global innovator in 
medicine? According to Raymond Gilmartin, Chairman, President and CEO 
of Merck & Co., because ``The U.S. pharmaceutical industry leads the 
world in its commitment to research. . .''
  There have been at least a dozen major economic studies, including 
those of Nobel Prize winner Robert Solow, which conclude that 
technological progress accounts for 50%, and lately considerable more, 
of our total growth and has twice the impact on economic growth as 
labor or capital. For the long term health of our economy, we need to 
invest now in activities that will have a future payoff in innovation 
and productivity. A one percent increase in our nation's investment in 
research results in a productivity increase of 0.23%. We need to ensure 
our future by creating the institutions and incentives to increase R&D 
investment in the United States. This Act will replace our current, 
dysfunctional system of on-again, off-again R&D tax credits with a tax 
credit that is reliably permanent. In the global economy we will have 
to not only out-perform our competitors, but out-innovate them. Giving 
our industry the tools to support their own innovation is a timely act.
  This Act meets the goals of some groups who favor simply making the 
credit permanent and increasing the alternative credit by one percent, 
as does

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the bill introduced by my esteemed colleague Senator Hatch. I am a 
cosponsor of Senator Hatch's bill. I believe we need to make the R&D 
credit permanent. But I feel strongly that we need further changes to 
the Act to increase its effectiveness, make it more accessible to small 
and start up businesses, update the credit to account for changes we 
are seeing in industry and, importantly, to complement the relationship 
between Federal and private sector research. The bill that Senators 
Domenici, Bingaman, Frist, Snowe, and myself are introducing makes 
these important changes, as well as making the R&D tax credit 
permanent.
  Industry research is largely dependent on the basic research 
undertaken by the Federal government. Because industry itself does not 
perform basic research--84% of industry research is concentrated on 
product development, the final stage of R&D--the private sector must 
draw on government-funded research to develop ideas for new market 
products. Of all papers cited in U.S. industry patents, 73% are from 
government and non-profit funded research. This marriage of basic 
Federal research and applied private research is essential. Yet, as a 
percent of GDP, Federal investment in R&D has been nearly halved over 
the last 30 years. We are living off of the fruits of basic research 
from the mid-1960s. In addition, the national labs and universities are 
facing a brain drain by the private sector as engineers and scientists 
are in high demand and increasingly in short supply. The private sector 
recognizes the importance of work accomplished through Federal funding 
and knows this is a problem that needs to be addressed. This bill 
encourages collaboration between private sector research and national 
labs and universities and offers a financial incentive to use the 
national labs and universities. Specifically, the Act encourages 
industry to use the federally funded programs by qualifying 100% of 
contract research accomplished at universities, national labs, and 
small businesses. It also enables basic research at Federally Funded 
R&D Centers to count toward the basic research credit. By expanding the 
credit to research done in consortia, the Act also recognizes that 
research today is more often done in collaboration than in isolation.
  The fastest method of moving research into the marketplace is often 
through small, startup companies. The Act updates the tax credit rules 
to accommodate the special R&D cycles faced by these companies. By 
supporting the small but crucial R&D efforts of new technology-based 
firms, the Act nurtures the very companies who contribute 
disproportionately to our national productivity and employment growth.
  The Act also updates our view of R&D. For the alternative credit, it 
calculates R&D expenditures with respect to a rolling baseline, rather 
than a fixed 1980's baseline that is increasingly remote and outdated 
as time passes.
  Mr. President, I believe there has been a growing awareness among 
Senators over the past couple of years that technology has been one of 
the driving forces behind our fantastic economic growth in this 
country. Despite that we are finally out of the red on the budget and 
finally in the black, we know that continued control and restraint must 
be exercised on the budget and we will have to make difficult choices 
about what programs to fund and what tax cuts to make. But now that we 
know that technological progress is responsible for 50% or more of 
economic growth, I think we owe it to ourselves to encourage such 
progress whenever possible. It is an investment in our future which we 
cannot do without.
                                 ______