[Congressional Record (Bound Edition), Volume 145 (1999), Part 17]
[Senate]
[Pages 24529-24530]
[From the U.S. Government Publishing Office, www.gpo.gov]



                RESEARCH AND EXPERIMENTATION TAX CREDIT

  Mrs. FEINSTEIN. Mr. President, I rise to note that since June 30 of 
this year, the Research and Experimentation Tax Credit has, once again, 
been allowed to lapse. As this body considers whether to enact a so-
called ``extenders'' package, I want to urge my colleagues to include 
and pass a permanent extension of the Research and Experimentation tax 
credit.
  The research and experimentation tax credit provides business an 
incentive to fund development of the technologies of tomorrow by 
providing a tax credit for investments in research.
  The research and experimentation tax credit is an important element 
in the creation of strong economic growth and rising productivity. 
Industry leaders have credited it with spawning private enterprise 
investments. It is especially important to the high-tech and emerging 
growth industries that are driving the California 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 remains, inexplicably, a temporary tax 
provision requiring regular renewal.
  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-range and sustained research in cutting-edge technologies. Scores 
of California companies--and companies across the country--owe much of 
their success and growth to the incentive provided by the research and 
experimentation tax credit.
  Research and experimentation is the lifeblood of high technology 
development, and if we want to continue to replicate the successful 
growth that has characterized the U.S. economy during this past decade 
it is crucial that we create a permanent research and experimentation 
tax credit.
  For example, Pericom Semiconductor, located in San Jose, 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 and is ranked by 
Deloitte Touche as one of the fastest growing companies in Silicon 
Valley. According to a letter I received from Pericom, utilization of 
the research and experimentation tax credit has been key to their 
success, enabling them to add engineers, conduct research, and expand 
their technology base.
  Indeed, according to a 1998 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, and the additional tax 
revenue created by these new jobs will help pay back the benefit of the 
credit.
  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. 
For example, American biotechnology is the world leader in developing 
effective treatments and biotech is considered one of the critical 
technologies for the 21st 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.
  I recently received a letter from the CEO of Genentech, for example, 
in which he wrote:

       The R&D tax credit is especially important to Genentech and 
     our patients. Our newest therapy, Herceptin, which is used to 
     treat metastatic breast cancer, is a prime example. The early 
     clinical trials for Herceptin showed that it was a somewhat 
     effective treatment for metastatic breast cancer, but the 
     results were not particularly robust. It was a classic case 
     of a research project being ``on the bubble'' in terms of 
     deciding whether to go forward into the most expensive phase 
     of human clinical trials. However, because the value of the 
     tax credit to Genentech directly means that we are able to 
     move one additional drug candidate each year into clinical 
     trials, we were able to move forward with the Phase III 
     Herceptin clinical trial in late 1994. I dare say that 
     without the R&D credit, Herceptin might well not have become 
     a reality. Today, thousands of patients are receiving this 
     important treatment.

  I ask unanimous consent that the full text of the September 30, 1999 
letter from Genentech Chairman Arthur Levinson be printed in the 
Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                              Genentech, Inc.,

                            San Francisco, CA, September 30, 1999.
     Hon. Dianne Feinstein,
     Hon. Barbara Boxer,
     U.S. Senate, Hart Senate Office Building, Washington, DC.
       Dear Senator Feinstein and Senator Boxer. On behalf of 
     Genentech, I would like to thank you both for your long-
     standing leadership and support for the Research and 
     Experimentation Tax Credit, more commonly known as the R&D 
     tax credit. Once again, however, we find ourselves in the 
     perilous position of the Congressional session quickly coming 
     to an end without providing an extension of the credit, which 
     expired on June 30, 1999. As you are well aware, the credit 
     is critical to California's economy, as

[[Page 24530]]

     the high technology and biotechnology sectors count on the 
     value of the credit to continue the economic expansion our 
     sectors have enjoyed for the past few years.
       The R&D tax credit is especially important to Genentech and 
     our patients. Our newest therapy, Herceptin, which is used to 
     treat metastatic breast cancer, is a prime example. The early 
     clinical trials for Herceptin showed that it was a somewhat 
     effective treatment for metastatic breast cancer, but the 
     results were not particularly robust. It was a classic case 
     of a research project being ``on the bubble'' in terms of 
     deciding whether to go forward into the most expensive phase 
     of human clinical trials. However, because the value of the 
     tax credit to Genentech directly means that we are able to 
     move one additional drug candidate each year into clinical 
     trials, we were able to move forward with the Phase III 
     Herceptin clinical trial in late 1994. I dare say that 
     without the R&D credit, Herceptin might well not have become 
     a reality. Today, thousands of patients are receiving this 
     important therapy.
       Clearly, Genentech is among the most research intensive 
     companies in the world. In 1996, we invested $471 million, or 
     49% of our revenue, on research and development and have 
     consistently devoted more than 30% of revenues to R&D in the 
     subsequent years. But research is our lifeblood. It gives 
     life to the ideas we test to treat serious, unmet medical 
     needs. Our strong portfolio of products is a direct 
     reflection of the ideas our scientists have brought from the 
     lab to the patient. And, as evidenced by our exciting 
     pipeline, I firmly believe the best of our science is yet to 
     come.
       Direct federal support for overall research has, for the 
     most part, been declining for over a decade. While a long-
     term commitment to increasing funds available to the federal 
     government for basic research is important, maximizing 
     private industry innovation through a permanent R&D tax 
     credit is perhaps the most cost-effective means of ensuring 
     that high levels of private-sector investment will continue 
     to be made.
       Your leadership and commitment to the R&D tax credit, has 
     resulted in great economic benefit for both our country and 
     for California. I encourage you to, once again, redouble your 
     efforts to extend the credit now so that greater economic 
     benefits and new therapies can benefit all Americans.
       I have attached a couple of op-ed pieces regarding the 
     credit which I and others wrote, and which ran in the San 
     Jose Mercury over the last two years. I look forward to 
     continuing to work with you and your staffs in support of the 
     R&D tax credit.
           Sincerely,
                                        Arthur D. Leninson, Ph.D.,
                             Chairman and Chief Executive Officer.

  Mrs. FEINSTEIN. 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.
  Over the past two decades 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 work 
to make sure that any Senate tax bill contains a permanent extension 
for the Research and Experimentation Tax Credit.

                          ____________________