Clinton Vetoes Tax Reduction Bill Containing Extension of R&D Tax Credit; Ways and Means Approves a Second Bill with the Credit

(September 25, 1999) President Clinton vetoed the Taxpayer Refund and Relief Act of 1999 with much fanfare at a White House ceremony on Thursday, September 23. The comprehensive tax reduction package included a five year extension of the research and development tax credit. The high tech industry has long sought to make the credit permanent, or least to keep extending it. The House Ways and Means Committee approved a second tax reduction bill on Friday morning which includes the same 5 year extension.

The R&D tax credit is a perennial issue in Congress. The credit was first enacted in 1981 as a temporary measure, and has been extended on eight occasions since then. Under the current scheme, corporations receive a 20% tax credit for qualified research and development expenditures (QREs) in excess of a calculated base amount.

Several bills introduced in the 106th Congress (including S 195, S 680, HR 760, HR 835, S 951, and HR 1682) would make the credit a permanent feature of the Internal Revenue Code.

However, all attempts to make it permanent in the past failed. The bill adopted earlier this session, HR 2488 ENR, contains another temporary extension.

The Taxpayer Refund and Relief Act would have extended the research and development tax credit for five years. It would also have increased the alternative incremental credit by one percent. The language approved on Friday by the Way and Means Committee was almost identical. However, it included "a couple of modifications on the phase in," a committee staffer told Tech Law Journal.

Bill Archer

The Ways and Means Committee, chaired by Rep. Bill Archer (R-TX), passed the new bill by a vote of 23 to 14 on a party line vote, with Republicans supporting the bill.

The next step for the bill is passage by the full House. Bill Sample, Chairman of the R&D Credit Coalition, told Tech Law Journal that "I am very hopeful they will pass it before the end of the session."

 The R&D Credit Coalition is a group of over 50 trade and professional groups associations and over 1,000 companies whose primary purpose is to seek a permanent R&D tax credit. Several bills were introduced earlier this year that would have made the credit permanent. Sample stated that "I would be surprised if legislation come up during this session to make the credit permanent. Next session is a possibility. We are going to keep working for one."

Bill Clinton vetoed the bill at an elaborate White House ceremony on Thursday, September 23. He stated at that event that "Congress has sent me the tax bill I have repeatedly pledged to veto. In a moment, I will do that because, at a time when America is moving in the right direction, this bill would turn us back to the failed policies of the past." He did not mention the R&D tax credit in his his speech.

In a message to the House of Representatives, Clinton wrote: "I am returning herewith without my approval H.R. 2488, the "Taxpayer Refund and Relief Act of 1999," because it ignores the principles that have led us to the sound economy we enjoy today and emphasizes tax reduction for those who need it the least."