[Congressional Record Volume 153, Number 159 (Friday, October 19, 2007)]
[Senate]
[Pages S13153-S13157]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself, Mr. Baucus, Ms. Cantwell, Mr. Smith, 
        Mr. Crapo, Ms. Snowe, Mrs. Lincoln and Mr. Kerry):
  S. 2209. A bill to amend the Internal Revenue code of 1986 to provide 
incentives to improve America's research competitiveness, and for other 
purposes; to the Committee on Finance.
  Mr. HATCH. Mr. President, I rise today to join with my friend and 
colleague from Montana, Senator Baucus, to introduce the Research 
Credit Improvement Act of 2007. We are joined by a bipartisan group of 
our Finance Committee colleagues: Senators Cantwell, Crapo, Kerry, 
Smith, Lincoln, and Snowe. As its title suggests, the purpose of this 
legislation is to extend permanently and to improve the research 
credit, which is set to expire in just a short time, at the end of 
2007.
  Our Nation has benefited greatly in recent years from strong economic 
growth. I believe it is vital for all Americans to realize that this 
economic growth did not just happen by accident. Rather, it is based on 
several factors, and one of the more important of these is innovation.
  Innovation certainly does not just happen either. It is the result of 
several specific ingredients. Chief among those ingredients is the 
amount of research and development occurring in the economy. Where does 
R&D come from? It comes from individuals, companies, and governments 
who are willing to invest time and money.
  Research and development is very expensive for companies to 
undertake. By its very nature, research activities seldom result in 
success immediately. There are many dead ends and much frustration on 
the way to the discovery of a product that can lead to profits.
  Moreover, many times a firm's efforts to find innovative solutions to 
life's problems result in good discoveries for mankind, but little or 
no immediate or even intermediate rewards for the company undertaking 
the research. For this reason, most economists agree that even private 
research and development activities can create a common good, and one 
that should be partially subsidized by the public.
  The original research credit was enacted over 25 years ago to 
encourage an increase in R&D activity and to help subsidize the common 
good that often is derived from research and innovation.
  Just as today's economic health is a byproduct of the innovation that 
came from yesterday's investment in R&D, our future economic health 
will depend on the amount of innovation we harvest from our investment 
in research activities today, tomorrow, and into the future.
  Years ago, our country had the clear edge on the rest of the 
industrialized world when it came to having the most nurturing 
environment to foster research and development. We had more than our 
share of the scientists, researchers, and other skilled workers to 
engage in R&D. We had plenty of capital. We had world-class facilities. 
And we had the biggest market for products right here in the U.S. All 
the ingredients for innovation were right here, and few other countries 
could match our research environment. Thus, there was little thought of 
going anywhere else to perform research.
  Sadly, this is no longer the case. Many of our trading partners now 
possess equal, and sometimes, superior environments to promote research 
to those we have here in the U.S. More importantly, many of these 
trading partners now offer strong tax and other incentives designed to 
lure research to those nations and away from our shores.
  Without a strong and effective research incentive of our own, I fear 
that the United States is at risk of losing its leadership position in 
innovation. The consequences of this could be very serious for our 
future economic growth and job creation, as well as for long-term 
prosperity and national security.
  Unfortunately, as I mentioned earlier, our research credit is set to 
expire in just a few weeks, at the end of December. Once again, 
American businesses are finding themselves in the all-too familiar 
position of wondering if the Congress is going to extend the research 
credit, and if so, when and for how long.
  This perennial guessing game that we force our research-intensive 
firms to play every year or two is getting old. Moreover, it makes the 
research credit far less effective than it would otherwise be if it 
were a constant. While it is true that there is some level of 
confidence among the users of the research credit that this incentive 
will be extended, everyone knows that the chances of the credit's 
renewal are not certain, especially in today's volatile legislative 
climate.
  Therefore, the legislation we are introducing today once again 
provides for the credit to be made permanent. A permanent credit can 
help our economy develop the new technologies that will enhance 
existing capital inputs and make workers more productive. The result 
will be a stronger economy at home, and a more competitive Nation 
abroad.
  In assessing the health of our economy, we find an important 
correlation

[[Page S13154]]

between economic growth and inflationary pressures. One sure way to 
have strong economic growth without the pain of inflation is to 
increase productivity. Most productivity gains are derived from 
technological advances, which reduce the cost of producing goods and 
services, and thereby help maintain low consumer prices.
  An additional benefit of productivity growth is a corresponding 
increase in corporate profits. Such increases lead to higher returns on 
savings and investment, and higher wages for workers. I believe the 
greatest benefit of increased R&D is productivity growth, which in turn 
forms the foundation of higher living standards.
  Productivity growth also largely determines our society's long-term 
economic welfare. Our ability to deal with budgetary challenges, such 
as Social Security, Medicare, and other entitlements, depends 
critically on the future direction of our productivity.
  My home State of Utah is a good example of how important research and 
innovation is to state economies, and to our future prosperity. Utah is 
home to various firms that invest a high percentage of their revenue in 
R&D. There are thousands of employees working in Utah's technology 
based companies, with thousands more working in other sectors that 
engage in R&D.
  According to a recent article in one of Utah's major newspapers, the 
Deseret Morning News, the number of Utah high tech and life sciences 
companies grew at the astonishing rate of more than 10 percent--from 
3,900 to 4,300--over the period of September 2005 to September 2006. 
These industries in Utah employ more than 62,000 workers, with average 
pay that is 66 percent higher than the statewide average 
nonagricultural wage. About 3,000 of these jobs are new ones added in 
the past year.
  These are the kinds of jobs and the kind of job growth that Utah, and 
all of the United States, needs for this new century. The jobs and 
companies in the high tech and life sciences sectors in Utah and around 
America are diverse. But they have several things in common. They are 
clean, they are high-paying, and they require an educated workforce. 
The vast majority of these companies export products, helping to offset 
our trade imbalance. Most importantly, however, is the fact that all of 
these jobs depend on innovation as their lifeblood. R&D is in the very 
DNA of these companies.
  One more thing all these highly desirable high tech jobs have in 
common is that America is at risk of losing them if we are not careful 
to maintain an environment that nurtures innovation and the other vital 
ingredients that gave rise to these jobs in the first place. To my way 
of thinking, keeping a strong and viable research credit is a key part 
of this environment.
  Since 1981, when the research credit was first enacted, the Federal 
Government has joined in partnership with large and small businesses to 
ensure that research expenditures are made in the United States. This 
enhances domestic job creation, and helps the United States to 
internalize more of the economic benefits from the research credit.
  It seems clear that to continue to grow our economy we must maintain 
and enhance our position as the world leader in technological advances. 
The worst thing we could do is to let it slip. Consequently, robust R&D 
spending should permeate our economy. We simply must continue to invest 
in research and development, and the Federal Government needs to 
reaffirm its role as a partner with the private sector.
  While the research credit has proven to be a powerful incentive for 
companies to increase research and development activities, it 
unfortunately does not work perfectly. There are several reasons for 
this, but a major one is that the original, or traditional, credit is 
calculated using a base period from the mid-1980s. This reference 
period is becoming more distant and thus less relevant to the business 
operations of more companies each year. For example, many companies 
have had major changes in their business models over the past two 
decades. Yet, the traditional credit still requires a calculation that 
references revenue from this set of years from two decades ago.
  This has been a growing problem for a number of years. To address it, 
Congress last year included an alternative to the traditional credit 
that instead of referencing the old base period, is based on the 
taxpayer's most recent three years of research activity. This credit, 
known as the simplified alternative credit, has provided a meaningful 
tax incentive for firms with significant and growing amounts of 
research expenditures that were not getting much, if any, benefit from 
the traditional credit.
  Based on many discussions with companies that use the research 
credit, it appears that the alternative simplified credit is now being 
used by more companies than is the traditional credit. This is true 
even though the alternative simplified credit is set at 12 percent, 
while the traditional credit is set at 20 percent.
  Therefore, Senator Baucus and I have decided to introduce a change in 
the research credit that would phase out the traditional credit, even 
as we increase the benefits of the alternative simplified credit. 
Specifically, our bill would continue the traditional credit for two 
more years, and then would eliminate this method of computing the 
research credit, beginning in 2010. At the same time, however, the bill 
would increase the alternative simplified credit from the 12 percent 
current rate to 16 percent in 2008, 18 percent in 2009, and 20 percent 
for 2010 and thereafter.
  We believe this gradual transformation from the increasingly obsolete 
traditional credit to a single more relevant and strong alternative 
simplified credit should create a smooth and generous transition, both 
for traditional credit companies and for firms that find the new 
alternative simplified credit to be more beneficial.
  I urge my colleagues on both sides of the aisle to join us in this 
effort. We have had widespread bipartisan support for extending the 
research credit here in the Senate. In fact, the Senate in 2001 passed 
a permanent research credit, but its permanence unfortunately was 
downgraded to another extension in conference with the House bill.
  I believe that if we allow the research credit to expire, we will see 
the negative effects manifest in lower economic growth, fewer jobs 
created, fewer innovative products created, and lost opportunities as 
research activities move to other countries with more attractive 
incentives. Again, we should never forget that our Nation's future 
economic health is dependent on the innovations of today and tomorrow.
  The United States needs to continue to be the world's leader in 
innovation. We cannot afford to allow other countries to lure away the 
research that has always been done here. We cannot afford to have the 
lapses in the research pipeline that would result if we fail to extend 
this credit before it expires on December 31. We need to make the 
credit permanent so we can increase the growth rate of our economy. 
And, we need to improve and simplify the credit so that it is more 
effective.
  Enacting this legislation would mean more and better jobs for 
American workers. Innovation and new technology resulting from American 
research and development will continue to improve the standard of 
living for every person in the U.S. and around the world.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2209

       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 ``Research Credit Improvement 
     Act of 2007''.

     SEC. 2. SIMPLIFICATION OF RESEARCH AND DEVELOPMENT CREDIT.

       (a) Transition to Fully-Implemented Simplified Credit for 
     Qualified Research Expanses.--
       (1) Phaseout of traditional credit.--Section 41(a) of the 
     Internal Revenue Code of 1986 is amended--
       (A) by striking ``20 percent'' each place it appears and 
     inserting ``the applicable percentage'', and
       (B) by adding at the end the following new flush sentence:

     ``For purposes of this subsection, the term `applicable 
     percentage' means 20 percent with respect to taxable years 
     beginning in 2008 and 2009.''.
       (2) Phasein of simplified credit.--Section 41(c)(5)(A) of 
     such Code is amended--
       (A) by striking ``12 percent'' and inserting ``the 
     applicable percentage'', and

[[Page S13155]]

       (B) by adding at the end the following new sentence: ``For 
     purposes of the preceding sentence, the term `applicable 
     percentage' means 16 percent with respect to taxable years 
     beginning in 2008 and 18 percent with respect to taxable 
     years beginning in 2009.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2007.
       (b) Fully-Implemented Simplified Credit for Qualified 
     Research Expenses.--
       (1) In general.--Subsection (a) of section 41 of the 
     Internal Revenue Code of 1986 (relating to credit for 
     increasing research activities) is amended to read as 
     follows:
       ``(a) Determination of Credit.--
       ``(1) In general.--For purposes of section 38, the research 
     credit determined under this section for the taxable year 
     shall be equal to 20 percent of so much of the qualified 
     research expenses for such taxable year as exceeds 50 percent 
     of the average qualified research expenses for the 3 taxable 
     years preceding the taxable year for which the credit is 
     being determined.
       ``(2) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(A) Taxpayers to which paragraph applies.--The credit 
     under this section shall be determined under this paragraph 
     if the taxpayer has no qualified research expenses in at 
     least 1 of the 3 taxable years preceding the taxable year for 
     which the credit is being determined.
       ``(B) Credit rate.--The credit determined under this 
     paragraph shall be equal to 10 percent of the qualified 
     research expenses for the taxable year.''.
       (2) Conforming amendment.--Section 41 of such Code is 
     amended by striking subsection (c).
       (c) Uniform Reimbursement Rates for All Contract Research 
     Expenses Other Than Amounts Paid for Basic Research.--
       (1) In general.--Section 41(b)(3) of the Internal Revenue 
     Code of 1986 (relating to contract research expenses) is 
     amended--
       (A) by striking ``65 percent'' and inserting ``80 
     percent'', and
       (B) by striking subparagraphs (C) and (D).
       (2) Basic research payments.--Section 41(b) of such Code is 
     amended by redesignating paragraph (4) as paragraph (5) and 
     by inserting after paragraph (3) the following new paragraph:
       ``(4) Basic research payments.--
       ``(A) In general.--In the case of basic research payments 
     by the taxpayer, paragraph (3)(A) shall be applied by 
     substituting `100 percent' for `80 percent'.
       ``(B) Basic research payments defined.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `basic research payment' means, 
     with respect to any taxable year, any amount paid in cash 
     during such taxable year by a corporation to any qualified 
     organization for basic research but only if--

       ``(I) such payment is pursuant to a written agreement 
     between such corporation and such qualified organization, and
       ``(II) such basic research is to be performed by such 
     qualified organization.

       ``(ii) Exception to requirement that research be performed 
     by the organization.--In the case of a qualified organization 
     described in clause (iii) or (iv) of subparagraph (C), 
     subclause (II) of clause (i) shall not apply.
       ``(C) Qualified organization.--For purposes of this 
     paragraph, the term `qualified organization' means any of the 
     following organizations:
       ``(i) Educational institutions.--Any educational 
     organization which--

       ``(I) is an institution of higher education (within the 
     meaning of section 3304(f)), and
       ``(II) is described in section 170(b)(1)(A)(ii).

       ``(ii) Certain scientific research organizations.--Any 
     organization not described in clause (i) which--

       ``(I) is described in section 501(c)(3) and is exempt from 
     tax under section 501(a),
       ``(II) is organized and operated primarily to conduct 
     scientific research, and
       ``(III) is not a private foundation.

       ``(iii) Scientific tax-exempt organizations.--Any 
     organization which--

       ``(I) is described in section 501(c)(3) (other than a 
     private foundation) or section 501(c)(6),
       ``(II) is exempt from tax under section 501(a),
       ``(III) is organized and operated primarily to promote 
     scientific research by qualified organizations described in 
     clause (i) pursuant to written research agreements, and
       ``(IV) currently expends substantially all of its funds or 
     substantially all of the basic research payments received by 
     it for grants to, or contracts for basic research with, an 
     organization described in clause (i).

       ``(iv) Certain grant organizations.--Any organization not 
     described in clause (ii) or (iii) which--

       ``(I) is described in section 501(c)(3) and is exempt from 
     tax under section 501(a) (other than a private foundation),
       ``(II) is established and maintained by an organization 
     established before July 10, 1981, which meets the 
     requirements of subclause (I),
       ``(III) is organized and operated exclusively for the 
     purpose of making grants to organizations described in clause 
     (i) pursuant to written research agreements for purposes of 
     basic research, and
       ``(IV) makes an election, revocable only with the consent 
     of the Secretary, to be treated as a private foundation for 
     purposes of this title (other than section 4940, relating to 
     excise tax based on investment income).

       ``(D) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Basic research.--The term `basic research' means any 
     original investigation for the advancement of scientific 
     knowledge not having a specific commercial objective, except 
     that such term shall not include--

       ``(I) basic research conducted outside of the United 
     States, and
       ``(II) basic research in the social sciences, arts, or 
     humanities.

       ``(ii) Trade or business qualification.--For purposes of 
     applying paragraph (1) to this paragraph, any basic research 
     payments shall be treated as an amount paid in carrying on a 
     trade or business of the taxpayer in the taxable year in 
     which it is paid (without regard to the provisions of 
     paragraph (3)(B)).
       ``(iii) Certain corporations not eligible.--The term 
     `corporation' shall not include--

       ``(I) an S corporation,
       ``(II) a personal holding company (as defined in section 
     542), or
       ``(III) a service organization (as defined in section 
     414(m)(3)).''.

       (3) Conforming amendments.--
       (A) Section 41 of such Code is amended by striking 
     subsection (e).
       (B) Section 41(f) of such Code is amended by striking 
     paragraph (6).
       (d) Permanent Extension of Credit.--
       (1) In general.--Section 41 of the Internal Revenue Code of 
     1986 is amended by striking subsection (h).
       (2) Conforming amendment.--Paragraph (1) of section 45C(b) 
     of such Code is amended by striking subparagraph (D).
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2006.
       (e) Conforming Amendments.--
       (1) Section 41 of the Internal Revenue Code of 1986 is 
     amended by redesignating subsections (d), (f), and (g) as 
     subsections (c), (d), and (e), respectively.
       (2) Paragraphs (2)(A) and (5) (as redesignated by 
     subsection (b)(2)) of section 41(b) of such Code are each 
     amended by striking ``subsection (f)(1)'' and inserting 
     ``subsection (d)(1)''.
       (3) Sections 45C(d)(3), 45G(e)(2), and 
     936(h)(5)(C)(i)(IV)(c) of such Code are each amended by 
     striking ``section 41(f)'' and inserting ``section 41(d)''.
       (4) Section 54(l)(3)(A) of such Code is amended by striking 
     ``section 41(g)'' and inserting ``section 41(e)''.
       (5) Section 170(e)(4)(B)(i) of such Code is amended by 
     striking ``subparagraph (A) or subparagraph (B) of section 
     41(e)(6)'' and inserting ``clause (i) or (ii) of section 
     41(b)(4)(C)''.
       (6) Sections 197(f)(1)(C), 197(f)(9)(C)(i)(II), and 
     280C(b)(3) of such Code are each amended by striking 
     ``section 41(f)(1)'' and inserting ``section 41(d)(1)''.
       (7) Section 280C(b)(3) of such Code is amended by striking 
     ``section 41(f)(5)'' and inserting ``section 41(d)(5)''.
       (8) Section 280C(b)(3) of such Code is amended by striking 
     ``section 41(f)(1)(B)'' and inserting ``section 
     41(d)(1)(B)''.
       (9) Section 280C(c)(1) of such Code is amended by striking 
     ``section 41(e)(2)'' and inserting ``section 41(b)(4)(B)''.
       (10) Section 280C(c)(2)(A) of such Code is amended by 
     striking ``section 41(a)(1)'' and inserting ``section 
     41(a)''.
       (11) Sections 936(j)(5)(D) and 965(c)(2)(C)(i) of such Code 
     are each amended by striking ``section 41(f)(3)'' and 
     inserting ``section 41(d)(3)''.
       (f) Effective Date.--Except as otherwise provided in this 
     section, the amendments made by this section shall apply to 
     taxable years beginning after December 31, 2009.
       (g) Study of Compliance With Substantiation Requirements.--
     The Secretary of the Treasury or his delegate shall, not 
     later than 1 year after the date of the enactment of this 
     Act, conduct a study of taxpayer compliance with the 
     substantiation requirements for claiming the credit allowed 
     under section 41 of the Internal Revenue Code of 1986, 
     including a study of--
       (1) whether taxpayers maintain adequate record keeping to 
     determine eligibility for, and correct amount of, the credit,
       (2) the impact of failure to comply with such requirements 
     on the oversight and enforcement responsibilities of the 
     Internal Revenue Service, and
       (3) the burdens imposed on other taxpayers by failure to 
     comply with such requirements.

     The Secretary shall report the results of such study to the 
     Committee on Ways and Means of the House of Representatives 
     and the Committee on Finance of the Senate, including any 
     recommendations for administrative or legislative actions 
     which could be taken to improve compliance with such 
     requirements.

  Mr. BAUCUS. Mr. President, back in 1962, Marshall McLuhan wrote, 
``The new electronic interdependence recreates the world in the image 
of a global village.'' Certainly, 40 years later, that concept is truer 
than ever. As we prepare for the future in this global village, we need 
to affirm America's leadership role in the world.
  The United States accounts for one-third of the world's spending on 
scientific research and development, ranking first among all countries. 
While this is impressive, relative to

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GDP, though, America falls to sixth place. And the trends show that 
maintaining American leadership in the future depends on increased 
commitment to research and science.
  Asia has recognized this. Asia is plowing more funding into science 
and education. China, in particular, understands that technological 
advancement means security, independence, and economic growth. Spending 
on research and development has increased by 140 percent in China, 
Korea, and Taiwan. In America, it has increased by only 34 percent.
  Asia's commitment is already paying off. More than a hundred Fortune 
500 companies have opened research centers in India and China. I have 
visited some of them. I was impressed with the level of skill of the 
workers whom I met there.
  China's commitment to research, at $60 billion in expenditures, is 
dramatic by any measure. Over the last few years, China has doubled the 
share of its economy that it invests in research. China intends to 
double the amount committed to basic research in the next decade. 
Currently, only America beats out China in numbers of researchers in 
the workforce.
  Today, I am pleased to join with my colleague on the Finance 
Committee, Senator Hatch, to introduce the Research Competitiveness Act 
of 2007. This bill would improve our research competitiveness in four 
major areas. All four address incentives in our tax code. Government 
also supports research through Federal spending. But I am not 
addressing those areas today.
  First, our bill improves and simplifies the credit for applied 
research in section 41 of the tax code. This credit has grown to be 
overly complex, both for taxpayers and the IRS. Beginning in 2008, our 
bill would create a simpler credit for qualifying research expenses 
that exceed 50 percent of the average expenses for the prior 3 years. 
This simplified credit would phase in over 3 years.
  Just as important, the bill makes the credit permanent. Because the 
credit has been temporary, it has simply not been as effective as it 
could be. Since its creation in 1981, it has been extended 11 times. 
Congress even allowed it to lapse during one period.
  The credit last expired in December of 2005. After much consternation 
and delay, Congress passed a 2-year extension just last month, 
extending the credit for 2006 and 2007. These temporary extensions have 
taken their toll on taxpayers. In 2005, the experts at the Joint 
Committee on Taxation wrote: ``Perhaps the greatest criticism of the 
R&E credit among taxpayers regards its temporary nature.'' Joint Tax 
went on to say, ``A credit of longer duration may more successfully 
induce additional research than would a temporary credit, even if the 
temporary credit is periodically renewed.''
  Currently, there are three different ways to claim a tax credit for 
qualifying research expenses. First, the ``traditional'' credit relies 
on incremental increases in expenses compared to a mid-1980s base 
period. Second, the ``alternative incremental'' credit measures the 
increase in research over the average of the prior 4 years.
  Both of these credits have base periods involving gross receipts. 
Under the new tax bill enacted last month, a third formula was created, 
which does not rely on gross receipts and is available only for 2007. 
Our bill simplifies these credits and will move all taxpayers to the 
``Alternative Simplified Credit,'' which is based on research spending 
without reference to gross receipts. The current formulas hurt 
companies that have fluctuating sales. It hurts companies that take on 
a new line of business not dependent on research.
  This new simpler formula in our bill would not start until 2008. That 
start date would give companies plenty of time to adjust their 
accounting. The current formula would be available to companies for 2 
years, and then it would phase out.
  The main complaint about the existing credits is that they are very 
complex, particularly the reference to the 20-year-old base period. 
This base period creates problems for the taxpayer in trying to 
calculate the credit. It creates problems for the IRS in trying to 
administer and audit those claims.
  The new credit focuses only on expenses, not gross receipts. It is 
still an incremental credit, so that companies must continue to 
increase research spending over time. Further, this bill adds a mandate 
for a Treasury study to look at substantiation issues and ensure that 
current recordkeeping requirements assist the IRS without unduly 
burdening the taxpayer.
  A tax credit is a cost-effective way to promote R&E. A report by the 
Congressional Research Service finds that without government support, 
investment in R&E would fall short of the socially optimal amount. Thus 
CRS endorses Government policies to boost private sector R&E.
  Also, American workers who are engaged in R&E activities benefit from 
some of the most intellectually stimulating, high-paying, high-skilled 
jobs in the economy.
  My own State of Montana has excellent examples of this economic 
activity. During the 1990s, about 400 establishments in Montana 
provided high-technology services, at an average wage of about $35,000 
per year. These jobs paid nearly 80 percent more than the average 
private sector wage, which was less than $20,000 a year during the same 
period. Many of these jobs would never have been created without the 
assistance of the R&E credit.
  Our research bill would also establish a uniform reimbursement rate 
for all contract and consortia R&E. It would provide that 80 percent of 
expenses for research performed for the taxpayer by other parties count 
as qualifying research expenses under the regular credit.
  Currently, when a taxpayer pays someone else to perform research for 
the taxpayer, the taxpayer can claim one of three rates in order to 
determine how much the taxpayer can include for the research credit. 
The lower amount is meant to assure overhead expenses that normally do 
not qualify for the R&E credit are not counted. Different rates, 
however, create unnecessary complexity. Therefore, our bill creates a 
uniform rate of 80 percent.
  The second major research area that this bill addresses is the need 
to enhance and simplify the credit for basic research. This credit 
benefits universities and other entities committed to basic research. 
It benefits the companies or individuals who donate to them. Our bill 
provides that payments under the university basic research credit would 
count as contractor expenses at the rate of 100 percent.
  The current formula for calculating the university basic research 
credit--defined as research ``for the advancement of science with no 
specific commercial objective''--is even more complex that the regular 
traditional R&E credit. Because of this complexity, this credit costs 
less than \1/2\ of 1 percent of the cost of the regular R&E credit. It 
is completely under-utilized. It needs to be simplified to encourage 
businesses to give more for basic research.
  American universities have been powerful engines of scientific 
discovery. To maintain our premier global position in basic research, 
America relies on sustained high levels of basic research funding and 
the ability to recruit the most talented students in the world. The 
gestation of scientific discovery is long. At least at first, we cannot 
know the commercial applications of a discovery. But America leads the 
world in biotechnology today because of support for basic research in 
chemistry and physics in the 1960s. Maintaining a commitment to 
scientific inquiry, therefore, must be part of our vision for sustained 
competitiveness.
  Translating university discoveries into commercial products also 
takes innovation, capital, and risk. The Center for Strategic and 
International Studies asked what kind of government intervention can 
maintain technological leadership. One source of technological 
innovation that provides America with comparative advantage is the 
combination of university research programs, entrepreneurs, and risk 
capital from venture capitalists, corporations, or governments. 
Research clusters around Silicon Valley and North Carolina's Research 
Triangle exemplify this sort of combination.
  The National Academies reached a similar conclusion in a 2002 review 
of the National Nanotechnology Initiatives. In a report, they wrote: 
``To enhance the transition from basic to applied research, the 
committee recommends that industrial partnerships

[[Page S13157]]

be stimulated and nurtured to help accelerate the commercialization of 
national nanotechnology developments.''
  In sum, our bill would boost both applied and basic research. It 
would boost research by businesses big and small. And it would foster 
research by for-profit and nonprofits alike.
  McLuhan's quote about the global village was taken by many at the 
time as a wake-up call to a changing world. Since then, many more 
leaders in this village have emerged. Let us work to see that the next 
big technological advance is discovered here in America. Only through 
continued commitment to research can we ensure that it is.
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