House Technology Subcommittee Holds Hearing on R&D Tax Credit

(July 2, 1999) The House Commerce Committee's Subcommittee on Technology held a hearing Thursday morning, July 1, on HR 2086, which would, among other things, make permanent the research and development tax credit. High-tech companies have long sought to have Congress make the credit permanent.

HR 2086 IH, the Networking and Information Technology Research and Development Act, was introduced on June 9, by Rep. James Sensenbrenner (R-WI), and many other members of the House Science Committee. It is a large authorization bill which deals with many high-tech related topics. However, the final part (Section 8), briefly provides that the research and development tax credit is made permanent. It would accomplish this by simply amending Section 41 of the Internal Revenue Code of 1986 by striking subsection (h).

Connie Morella

Rep. Connie Morella (R-MD), who is a cosponsor of HR 2086, and Chairman of the Technology Subcommittee, presided at the hearing. "Since 1992, businesses producing computers, semiconductors, software, and communications equipment have accounted for one third of our economic growth," Rep. Morella said in her opening statement.

"Unfortunately, while fundamental research in information technology has contributed to the creation of new industries and high-paying jobs, the current IT boom is built on research carried out more than two decades ago. If we are to maintain our global preeminence in IT, it is clear that we must prioritize and increase our investment in information-technology research."

In addition to making permanent the R&D tax credit, HR 2086 would also establish an internship program which would award grants to colleges, including community colleges, for students to intern at information technology companies. It would also direct the National Science Foundation to conduct a study on the availability of encryption technologies around the world.

However, Thursday's hearing focused mostly on the R&D tax credit. The subcommittee heard from three witnesses: William Destler, VP of the University of Maryland, Laura Allbritten, Director of Tax for Peoplesoft, and Kevin Hassett, an economist at the American Enterprise Institute. All three testified enthusiastically in favor of permanently extending the credit.

Laura Allbritten, who also testified on behalf of the Software and Information Industry Association (SIIA) and the R & D Credit Coalition, said in her opening statement that "A permanent R & D credit is essential for the United States economy in order for its industries to compete globally, as international competitors offer direct financial subsidies and reduced capital cost incentives to "key" industries. PeopleSoft, SIIA and the R&D Credit Coalition strongly support the permanent extension of the R&D credit, and increasing the AIRC rates by one percentage-point." HR 2086, unlike some other pending bills, would not affect the AIRC, or Alternative Incremental Research Credit.

Rep. Morella also spoke favorably about the tax credit. "Unfortunately, just yesterday, the R&D tax credit expired once again for the 10th time. This annual guessing game surrounding the extension of the credit has often inhibited those in the high-tech industry from planning for and engaging in long-term research. In fact, when the tax credit temporarily expired last year, some projects were actually canceled."

Rep. James Barcia (D-MI) delivered an opening statement, and questioned witnesses, but focused on the IT internship grant program.

Rep. Roscoe Bartlett (R-MD) commented that making the tax credit permanent might be of limited effectiveness. "Even if we make it permanent, we can't bind the next Congress," said Rep. Bartlett. He pointed out that a future Congress could repeal the tax credit.

The one point on which witnesses disagreed was the effect of not having a permanent R&D tax credit. Kevin Hassett suggested that companies and their tax lawyers have come to expect Congress to keep extending the tax credit, and act accordingly. Laura Allbritten disagreed, stating that the uncertainty over the future of the credit causes companies to invest less on research and development.

Rep. Lofgren

Rep. Zoe Lofgren (D-CA) (web site | bio) is a cosponsor of HR 2086, and a member of the Science Committee, but not the Technology Subcommittee. She did not attend, but spoke with Tech Law Journal after the hearing.

She wants one of the many R&D tax credit bills to be brought to the House floor for a vote after the July 4 recess. "You can put any number on it you want," she said. "To allow it to expire guarantees that you are going to continue to have a problem."

"Republicans are in control of what bills go to the floor," Rep. Lofgren added. "Since they have not brought it to the floor, one must wonder why not." She concluded that, "I know that if they brought it to the floor, it would pass."

The members of the subcommittee who participated in the hearing included Brian Baird (D-WA), James Barcia (D-MI), Roscoe Bartlett (R-MD), Connie Morella (R-MD), Lynn Rivers (D-MI), and David Wu (D-OR).

The hearing was attended by few members of the press, and the audience section was mostly empty. However, the hearing was held just as the full House was about to take up two landmark bills, HR 775 (Y2K litigation reform bill) and HR 10 (banking reform bill).