Statement by Rep. Patrick Kennedy (D-RI). Re: Support for HR 850 (SAFE Act) and HR 835 (an R&D tax credit bill). Date: May 28, 1999. Source: Office of Rep. Patrick Kennedy.

CONGRESSMAN PATRICK J. KENNEDY
OPINION EDITORIAL
MAY 1999

TIME FOR LEGISLATION TO CATCH UP WITH TECHNOLOGY

As a member of the Armed Service Committee, protecting our National Security interests is among my highest priorities. Be assured, if I believed for one minute that controlling encryption exports worked towards this end, I would be its strongest proponent. In prior years, I believed that these export controls strengthened our security. However, I have come to believe that rather than protect us, export controls on encryption software are placing America's software industry at a disadvantage, while at the same time placing our own security interests at risk. Additionally, the failure of the last two Congresses to make the Research and Development (R & D) Tax Credit permanent is hindering our high-tech success and defense growth. In order for America to keep the advantages it holds in the high-tech industry, it is time to change our national policies in these areas to catch up with technology. Therefore, I am supporting both H.R. 850, The Security and Freedom Through Encryption (SAFE) Act, and H.R. 835 the Permanent Research and Development Tax Credit Act.

Encryption technology is the key to security in the information age. In the past, the United States' encryption policy had justifiable restrictions that were in place to protect our national Security. But what we failed to recognize is that by simply controlling our exports, we are not stopping the world from access to these encryption products.

The reality is that the international marketplace ensures that those who want to can purchase this technology and they are purchasing it from foreign companies. Right now, there are literally hundreds of foreign encryption products for sale around the world. Our own industries are rapidly losing their market share of encryption and larger systems to these foreign companies. Companies in Ireland, Germany, England, India, Japan, and Russia, to name a few, are developing their own telecommunications software and hardware technology, while our restrictions on encryption allow them to, in effect, control what is sold and to whom. This is coupled with the fact that these companies have instituted controls that limit future service and product upgrades to their own products, a blatant assault on American corporations. This not only hurts us economically, but also endangers our national security by allowing foreign encryption to thrive unchecked. There are two specific steps we need to take to protect American jobs and industry from being undercut by foreign companies.

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First, I support H.R. 850, entitled The Security and Freedom Through Encryption Act (SAFE). SAFE amends the Export Assistance Act (EAA) to grant the Secretary of Commerce authority over non-military encryption. It allows the Secretary a one time review to determine if the encryption should be permitted to be exported. Not only will SAFE not jeopardize our security, but it will actually enhance our capacity to compete and monitor the high-tech industry.

Secondly, we need to do more to support Research and Development. It is no secret that R & D is essential to our global leadership. Foreign competitors have their growth fostered by generous government-provided incentives to R & D. Our companies compete against them, even though they are held to a disadvantage because they are without a similar subsidies for growth. We need to provide tools, such as a permanent R & D Tax Credit for our industry to be an active player in the worldwide R & D community. Additionally, R & D benefits large and small companies and their employees. A recent study showed that the Tax Credit provides a 31 percent return on investment, and assisted over 12,000 companies over the past eight years. A growing number of these are small firms that are cash-poor and lack the capital to conduct high-risk projects.

The Permanent R & D Tax Credit Act, H.R. 835, will end the need for the yearly debate of annual extension of the tax credit. The Credit has been extended nine times, and has unfortunately lapsed on three occasions. We cannot fully realize the benefits of the R & D credit until we make it permanent. Because the nature of R & D is a lengthy planning and implementation process, the uncertainty of the credit makes it difficult for firms to project what the return will be on their investments. It is critical for companies to be able to rely on a dependable and permanent tax credit that fosters long-term investment.

Technology and computers are the key to our National Security, economy. and to the future of American dominance of this market. As we attempt to further our growth and stability in these areas, we MUST ensure that it is our market, our companies, and our workers that are benefiting from the growth of this global information-based economy, and not some foreign government. Because of these above-mentioned reasons, I am proud to support the SAFE Act and the Permanent R & D Tax Credit Act, and will urge my colleagues in Washington to do the same. It is time for Washington, and our legislation, to catch up with technology.