Senate Committee and House Pass R&D Tax Credit Bills

(July 23, 1999) The Senate Finance Committee adopted the Taxpayer Refund Act by a vote of 13 to 7 on Wednesday, July 21. The Committee adopted by voice vote an amendment offered by Sen. Hatch to permanently extend the research and development tax credit. On Thursday, July 22, the full House approved the Financial Freedom Act on a roll call vote of 223 to 208. It contains a five year extension of the R&D tax credit. President Clinton has threatened to veto these bills.

Congress has been temporarily extending the research and development tax credit for almost two decades. High tech companies have been lobbying hard for making it permanent.

"Extending the R&D tax credit has become one of the annual rites of spring," one staff assistant to a Member of Congress told Tech Law Journal after the House vote. However, now "both parties are falling over each other as to who can do more for high-tech America."

The credit was first enacted in 1981 as a temporary measure, and has been extended on eight occasions since then. Under the most recent scheme, corporations receive a 20% tax credit for qualified research and development expenditures (QREs) in excess of a calculated base amount. It expired on July 1, 1999.

The House Ways and Means Committee approved HR 2488, the Financial Freedom Act of 1999, last week. It is a broad tax bill. Sec. 1401 of HR 2488 IH would extend the tax credit for five years. On Thursday afternoon, July 22, the House passed this bill on a largely party line roll call vote of 223 to 208.

It would again extend the tax credit -- this time for five years. It would cover the time period of July 1, 1999 through June 30, 2004. In addition, the credit rate applicable under the alternative incremental credit would be increased by one percentage point per step.

The Senate Finance Committee passed its tax bill, the Taxpayer Refund Act of 1999, on Wednesday, July 21.

Sen. Hatch

The R&D tax credit was not a part of the original bill. However, several bills had been introduced in the Senate which would make the R&D tax credit permanent, including S 680, sponsored by Sen. Orrin Hatch (R-UT).

Sen. Hatch offered a R&D tax credit amendment at the Senate Finance Committee markup. It was approved on a voice vote. The bill itself was approved on a roll call vote of 13 to 7. Sen. Bob Kerrey (D-NE) and Sen. John Breaux (D-LA) joined with all of the Republicans in voting for the bill.

The bill will likely be debated by the full Senate next Wednesday and Thursday, a staff assistant to a member of the Finance Committee told Tech Law Journal.

The Senate Finance Committee, unlike other committees, does not vote on the formal language of bills. It votes on concepts. The following summary, circulated prior to the vote, embodies the R&D tax credit concept approved by the Committee.

Harris Miller, President of the Information Technology Association of America (ITAA), stated after the Senate Finance Committee vote that "we are delighted that lawmakers on both sides of the aisle have supported the IT industry and its formidable impact on the America economy by supporting this key amendment." He added: "This is the kind of bipartisan effort that rings true for consumers, investors and employees alike. We hope the conferees will follow the Senate's lead and make the extension permanent."

The National Association of Manufacturers hailed passage of the House bill. "This bill will provide needed tax relief for American workers and the companies they work for. The bill’s pro-growth provisions can ensure that projected surpluses will materialize. If Congress and the White House are serious about future economic expansion, tax cuts are essential. What this plan really is about is an economic insurance policy," said NAM SVP Michael Baroody.

"The contribution of research and development to economic growth cannot be overstated. Increased productivity, new product development and process improvements are a direct result of technological advances that result from R&D investment, and the tax credit is a key factor in promoting increased research spending," said Baroody.

President Bill Clinton has threatened to veto these tax bills. However, he has not cited the inclusion of the R&D tax credit extensions.

The White House website published the following Statement by the President regarding the House bill: "Last night, the Republicans went behind closed doors, not to strengthen Medicare and Social Security, but to provide political cover for their exploding tax cut. Today, the Republicans charged ahead and passed a plan that threatens our ability to pay off the debt and strengthen Social Security and Medicare. The plain fact is that their tax plan is designed to explode to a $3 trillion cost at the very time that Medicare and Social Security come under strain. It would also force deep and devastating cuts in a broad range of domestic programs, including education, the environment, and law enforcement. If the Republicans send me a plan that undermines our ability to reform Social Security and Medicare and abandons the fiscal discipline that has helped to fuel our economic growth, I will send it straight back with a veto."