Congresswoman Heather Wilson, First Congressional District of New Mexico

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R&E; TAX CREDIT BILL INTRODUCED BY NEW MEXICO LAWMAKERS	March 12, 2001

Permanent Extension to Tax Credit Would Boost U.S. High Tech Growth WASHINGTON -- In a bid to ensure American industry stays at the forefront of technological innovation, U.S. Senators Pete Domenici and Jeff Bingaman today introduced legislation to make permanent a tax credit for research and development undertaken by business. The New Mexico senators today introduced the Private Sector Research and Development Investment Act of 2001. This bill continues the leadership from both Senators in a wide-ranged of initiatives supporting advanced technologies and their contributions to the nation’s economic health. A companion measure will be introduced in the House of Representatives by Congresswoman Heather Wilson, R-N.M. The legislation will make the research and experimentation (R&E;) tax credit permanent and strengthen incentives for private companies to undertake research that leads to new processes, services and products. By reforming the existing R&E; tax credit law and making the incentives permanent, American companies will be better able to use the credit to promote the nation’s industrial and technological edge. “The United States maintains its economic strength by constantly improving products and services through technological innovation,” Domenici said. “The majority of new products require industrial research and development to reach the market stage. The current tax credit is not providing enough incentive for industrial R&E.; In fact, there is evidence that uncertainties surrounding the current credits actually serve as a disincentive to long-term research investment.” “Making the R&E; tax credit permanent is key to helping keep our national labs and universities on the cutting edge. Being out front on science and technology is absolutely critical to ensuring we remain competitive in the global marketplace,” said Bingaman, a member of the Senate Finance Committee that has jurisdiction over tax policy. “New Mexico is a leader in technology development through research and experimentation,” Wilson said. “This proposal will benefit not only New Mexico, but America, through a strengthened incentive for more innovation and development. Businesses need to be confident the R&E; tax credit is permanent when they make their research decisions.” One recent study evaluating a permanent R&E; tax credit estimated a $41 billion stimulus for the economy by 2010, with $13 billion added to the economy’s productive capacity by 2010. The Senate bill is cosponsored by Senators: Evan Bayh, D-Ind.; Bill Frist, R-Tenn.; Ted Kennedy, D-Mass.; Joseph Lieberman, D-Conn.; Olympia Snowe, R-Me., and Jay Rockefeller, D-W.V. “Research and Development has been the catalyst for our latest economic expansion,” Frist said. “To maintain our economic growth and ensure that America remains the world’s leader in R&D;, it’s critical that the federal government do its part and provide businesses with the necessary tools to continue their groundbreaking efforts. Passing this proposal would maintain and enhance the strength of American business for decades to come.” “Our legislation,” Bingaman added, “provides new incentives for companies to invest in research at universities, national laboratories, small businesses and consortia partnerships. The output of these investments will be not only new products, but the next generation of trained scientists and engineers that will be the foundation of America’s technological and economic strength well into the next century.” “This legislation significantly strengthens incentives for private companies to undertake research that leads to new processes, services, and products. The result will be stronger companies that are better positioned for global competition,” Domenici said. “Those stronger companies will hire more people at higher salaries with real benefits to our national economy and work force.” SUMMARY Private Sector Research and Development Investment Act of 2001 The legislation addresses two broad goals: • establishes a permanent credit, and • strengthens the formulation of the credit. The bill enhances the credit received by all users of the regular Research Tax Credit. Thus, all companies benefitting from its current formulation are positively impacted. The changes in the credit are focused in the Alternative Credit and Basic Research Credit portions of the current credit legislation and represent significant enhancements to these options. The bill addresses several concerns with the existing credit • base period used for the regular credit, 1984-88, is out-dated. • 50 percent rule precludes most startups from gaining full credit. • basic research credit is very difficult to use. • alternative credit provides no strong incentive for increased research intensity. In addition to permanence, the bill increases the maintenance level of the alternative credit to 4 percent. (Thus the bill meets the goals of some groups who favor simply permanence and 1% addition to the alternative credit.) In addition, the bill: • establishes a 20 percent marginal rate for increased research intensity for users of the alternative credit, • changes the base period for alternative credit users to an eight year average, • eliminates the 50 percent rule for users of the alternative credit, • encourages industrial partnerships with universities and national labs, • expands definition of basic research to include all published work, • enables basic research at FFRDCs to count toward the basic research credit, • qualifies 100 percent of contract research accomplished at universities, national labs, and small businesses, • encourages establishment of research-driven consortia by providing 20 percent credit for their research expenses, • provides a phase-in of credit for start-up businesses, and, • enables small businesses to count patent filing fees toward research expenses. With these enhancements, the Domenici-Bingaman Bill provides a permanent Research Tax Credit that addresses shortcomings in the current formulation of the credit. Furthermore, the bill meets the goals of constituents who favor only permanence or only permanence plus an increase in the alternative credit. --30--