Statements On Introduced Bills And Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - April 17, 2008)

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By Ms. COLLINS (for herself and Mr. Hatch):

S. 2884. A bill to amend the Internal Revenue Code of 1986 to provide incentives to improve America's research competitiveness, and for other purposes; to the Committee on Finance.

Ms. COLLINS. Mr. President, I rise today to introduce the Research & Development Tax Credit Improvement Act of 2008, legislation which would extend the R&D tax credit for 5 years, phase-out the Basic Credit, and raise the rate of the Alternative Simplified Credit from 12 percent to 20 percent by 2010.

Those who have followed the ongoing discussions regarding the R&D tax credit will recognize that the legislation I am introducing shares the framework of a proposal already put forward by the senior Senator from the State of Utah, my good friend Orrin Hatch. Senator Hatch has done a superb job building a consensus around the need to transition to the Alternative Simplified Credit, and to raise that credit to provide a real incentive to the many companies that are unable to benefit from the Basic Credit structure. I applaud his efforts in this regard, and I thank him for lending his support to the bill I am introducing today.

I also want to note the contribution of the distinguished Chairman of the Finance Committee, Senator Baucus, who has worked side-by-side with Senator Hatch on the Research and Development tax credit.

The chief distinction between our two bills is the duration of the credit. The Hatch-Baucus bill proposes a permanent credit, while my bill would extend the R&D tax credit for five years. I certainly share the goal of providing a permanent R&D tax credit, but I fear that the cost of doing so puts it beyond our reach. Yet we simply cannot continue to play ``stop-and-go'' with this critical research incentive. Since the R&D tax credit was first enacted in 1981, Congress has had to extend it a dozen times, and it expired again at the end of last year. The constant uncertainty about the status of the credit has made it impossible for companies to plan their research investments, and has seriously diminished the credit's role as an incentive for research and development here in the U.S.

A 5-year extension would give companies enough time to plan their research investments with the credit in mind, restoring the incentive-effect the R&D credit has always been intended to provide. Just as important, the time frame I am proposing, coupled with the increase in the rate to 20 percent will allow for a smooth transition away from the Basic Credit to the Alternative Simplified Credit. The Basic Credit has served its purpose, but it has become hopelessly outmoded. Under the Basic Credit methodology, companies wishing to calculate their R&D credit must measure their current investments against a base that is stuck in the past--literally the tax years between 1984 and 1988. This period is simply not relevant to today's investment decisions, and because of that, fewer and fewer companies get any benefit at all from the Basic Credit.

By contrast, the Alternative Simplified Credit methodology allows companies to calculate their credit using a rolling average of their domestic investments over their three most-recent tax years.

The value of doing this is evidenced by the fact that most companies have already switched to the Alternative Simplified Credit, even though it has been on the books for less than a year-and-a-half, and even though the credit rate is only 12 percent compared to the Basic Credit rate of 20 percent.

The five-year extension I am proposing will allow for a smooth transition to the Alternative Simplified Credit, and will bring the R&D tax credit up-to-date. Companies which still rely on the Basic Credit will be allowed to continue that credit for another two years, just as is contemplated by the legislation that Senators Hatch and Baucus have worked so hard on.

Investment in research and development is critical to the breakthroughs we need to keep our economy competitive, and to create the good, high-paying jobs the American people deserve. The R&D tax credit provides an important incentive for this investment, but it needs to be updated so more companies can benefit from it. While making the credit permanent is a worthwhile goal, the 5-year extension I am proposing today is ``do-able'', and I urge my colleagues to support it.

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