university R&D had decreased by over 30 percent since 1960 to a scant 4.1 percent of R&D dollars brought to universities. 48/ Also as the result of the dramatic surge in technological progress in the last 20 years, the costs to our universities of educating future scientists and engineers and of performing the basic research necessary to continuing technological progress have increased rapidly. Both the increasing complexity of the technology and the need for sophisticated capital equipment which is subject to early obsolescence have increased costs substantially. Both industry and universities benefit from the expansion of knowledge which can be achieved through expanded university basic research efforts. Just as importantly, through expanded research our universities receive substantial resources to improve their scientific education and training programs. At our colleges and universities, education in mathematics, engineering, and the physical, biological, and computer sciences has suffered from a chronic shortage of faculty and a lack of up-to-date scientific facilities and equipment upon which the students and faculty can learn and perform research. Universities not only face great difficulty 48/ Written Statement of Larry A. Sumney, Executive Director, Semiconductor Research Corporation, Before the Subcommittee on Oversight of the House Committee on Ways and Means, August 3, 1984, 4. in stretching tight budgets to compete with private industry for faculty, but they also face difficulty in attracting high caliber faculty because of teaching overload generated by faculty vacancies and the antiquated laboratory facilities available for teaching and research. The result of these chronic shortages of university science faculties and antiquated laboratory facilities is an inadequate supply of scientifically-skilled labor, especially in critical areas such as computer science, electrical engineering, and mechanical engineering. Increased corporate funding of university basic research must be a major factor in any effort to provide universities with the financial resources to attract scientific faculty and to modernize laboratory facilities. These modernized facilities, in turn, will help attract high caliber faculty by providing more up-to-date laboratories within which the faculty member can perform his or her research. In addition, the university basic research projects conducted in cooperation with industry will constitute a significant attraction to new faculty by providing the opportunity to work on a well-funded project examining research problems and issues that are on the frontier of the scientific fields underlying industrial technology. To the extent that through these efforts faculty shortages are remedied and the scientific facilities are modernized, the supply of scientists, engineers, and scientifically-trained manpower will be expanded, and a pool of highly-trained talent will be available not only to the high technology industries but to a broad range of industries across this Nation as well. 49/ The early experience with the university basic research provisions in the current R&D credit has demonstrated that industry will respond to a tax incentive for funding university basic research. Larry Sumney, Executive Director of the Semiconductor Research Corporation, a non-profit organization formed by companies in the semiconductor industry to promote basic research by pooling company membership fees and contracting with universities throughout the country for the creation of major research centers and specific research projects, testified before this Subcommittee that: SRC's experience, we believe, helps demonstrate that industry has responded to the incentives contained in the present R&D tax credit for corporate support of university basic research. In the two years since SRC was formed, its membership has grown from ten to twenty-six companies, and its budget for its activities has increased from approximately $6 million in 1982 to over $15 million for 1984. . . [I]n SRC's first full year of operation in 1982, it received over 150 proposals from 52 universities from around the nation in response to its initial request for university basic research 49/ Written Statement of Sumney (Semiconductor Research Corporation), supra, at 5-7. proposals. SRC has awarded 50 contracts for Mr. Sumney testified that the R&D credit has been an important factor in the creation and subsequent growth of SRC's collaborative funding of university basic research, both because of the positive environment for R&D and university basic research which existed with the enactment of the credit and because of SRC's ability to use the tax credit as a positive sales tool to attract corporate members willing to fund university basic research activities. 51/ As SRC's experience with the university basic research credit has been confirmed by individual company experience. Digital Equipment Corporation noted in a submission to this Subcommittee: 52/ "The R&D tax credit's greatest impact at Digital has been in the area of research grants to and contract research with universities. Prior to the credit, Digital made occasional research arrangements with universities. In fiscal 1984, Digital will show a charitable deduction of $17 million 50/ Written Statement of Sumney (Semiconductor Research Corporation), supra, at 8. 51/ Id. 52/ Letter from Albert E. Mullin, Jr., Vice President, Corporate Relations, Digital Equipment Corporation to Chairman Charles B. Rangel, October 3, 1984. for equipment given to universities under section 170(e)(4) of the Internal Revenue Code. Digital also will spend in excess of $30 million for contract research with universities. Fiscal 1985 spending for contract research with universities may exceed $65 million." Similarly, GCA Corporation noted: "In addition, the R&D credit was a major catalyst to the execution of research agreements with nine major educational institutions for basic robotics research." 53/ IBM, in describing the effect of the credit on its research activities, observed: "IBM's cooperative research with U.S. universities has grown rapidly in recent years, to the point that more than 910 projects have been initiated over 460 of which are now active with 135 different institutions, representing a current multi-year IBM commitment of over $90 million." 54/ This pattern of growth in corporate support of university basic research in the period since the enactment of the R&D credit - 53/ Letter from Richard A. Bissell, Manager of Taxes, GCA Corporation, to Chairman Charles B. Rangel, September 17, 1984. 54/ Letter from John G. Boyd, International Business Machines Corporation, to Chief Counsel John J. Salmon, September 17, 1984. |