Hatch Introduces Bill to Permanently Extend R&D Tax Credit

(March 23, 1999) Senators Hatch, Baucus, and Robb held a press conference with high-tech industry leaders in Washington on Monday, March 22, to announce the introduction of a bill to make permanent the existing research and development tax credit.

Sen. Orrin Hatch (R-UT), Sen. Max Baucus (D-MT), and Sen. Charles Robb (R-VA) announced that they are filing a bill to make permanent the research and development tax credit, which has been a constantly extended temporary feature of the Internal Revenue Code since 1981. Their bill would also raise rates for what is known as the alternative incremental credit.

Sen. Hatch and Sen. Baucus have tried unsuccessfully in previous congresses to make the tax credit permanent. "But I would like to think that this year will be different," said Sen. Baucus, citing the balanced budget and the need to keep the growing economy on track.

Rep. Nancy Johnson

A copy of the bill was not made available at the press conference. However, it is the companion bill to HR 835, which was introduced by Rep. Nancy Johnson (R-CT) and Robert Matsui (D-CA) on February 24. HR 835 is also cosponsored by over 100 members of the House. Rep. Johnson is a senior member of the House Ways and Means Committee, which has jurisdiction over the bill.

"The R&E tax credit has been extended nine times since 1981, and it is due to expire again at the end of June," Sen. Hatch stated. "This on again-off again pattern makes the credit unreliable and severely handicaps its effectiveness in increasing R&D spending."

Sen. Hatch also asserted that the marginal effect of one dollar of tax credit is to stimulate one dollar of additional spending in the short run, and two dollars in the long run.

	Sen. Hatch

Sen. Hatch also elaborated on why the R&D tax credit is important for his state -- Utah. "Research and Development has played a large part in the considerable economic expansion that has taken pace in Utah over the past decade. Utah is home to many high-tech businesses. For example between Salt Lake and Provo lies the world's biggest stretch of software and computer engineering firms. This area was labeled "Software Valley" by Business Week and is second only to Silicon Valley as a thriving high tech area. Approximately 80,000 workers in Utah are employees in the 1,400 plus technology based companies including many biotechnology and biomedical firms. R&D is the lifeblood of these firms and thousands of firms like them throughout the nation."

Members of the press asked if another temporary extension would be passed. Sen. Hatch responded: "We want a permanent extension."

"Most provisions of the tax law are permanent. My gosh. We are talking about one very very important to the country's future" said Sen. Baucus. "I could make a very good argument -- a much better argument why this should be permanent compared to some of the other provisions of the tax law."

Sen. Baucus is currently the second ranking Democrat on the Senate Finance Committee, which has jurisdiction over this bill. Sen. Patrick Moynihan (D-NY) has announced that he will not seek re-election in 2000. Hence, Sen. Baucus will likely become the Ranking Minority Member, or Chairman, of the committee after the 2000 election.

"We are not trying to create a loophole, said Sen. Robb. "We are trying to create an incentive to do the right thing."

In addition to the three Senators, four industry representatives who also spoke: Harris Miller (President of the Information Technology Association of America), Ray Rossi (Intel Director of External Tax Affairs), Roger Wheeler (Chief Tax Officer of General Motors), and Walter Moore (Genentech). There was also a large contingent industry group representatives in the room.

"U.S. businesses rely on the credit to develop their products in the U.S. rather than overseas, by helping to offset higher labor costs. American jobs and our long-term competitiveness are at stake," said Harris Miller, ITAA President. "By making the credit permanent, business decision-makers will be able to rely on its availability in forming their long-term corporate R&D programs. We applaud Senators Hatch and Baucus for taking this important step toward encouraging long-term business investment."

"There is always too much R&D, and too few dollars," said Ray Rossi of microchip processor Intel. "There are always projects to be funded that can't possibly be funded because we don't have any R&D dollars available."

Walter Moore of the biotech firm, Genentech, stated that for his company the R&D tax credit meant the difference between testing four new drugs per year, rather than three.

"Long-term research is an investment in America, and an investment in our future," said John Doerr in a statement released at the event. "It was the hard work and foresighted research of the past that made possible the breathtaking technological gains of today's new economy. And just as assuredly, it is the work of today that will enable advances in the next millennium. It is in everyone's interest to support long term research, and that is why TechNet enthusiastically endorses the Hatch-Baucus legislation." Doerr is a partner in Kleiner Perkins, a venture capital firm specializing in high tech and biotech companies.

After a number of questions from the press regarding the R&D tax credit, Fox Television News shifted the topic of the press conference to Chinese espionage in the U.S.