Hon. DAN ROSTENKOWSKI, Rayburn House Office Building, AUTOMATED FINANCIAL SYSTEMS, INC., U.S. House of Representatives, Washington, DC. DEAR REPRESENTATIVE ROSTENKOWSKI: AFS is a small computer software development and marketing organization specializing in financial applications. I would like to express to you the benefits of the R&D tax credit to the continuing growth of the software industry. Our organization has developed four new products in the last three years. These products have added employees and stability to AFS. This growth and stability has improved the industry which in turn benefits the economy. In starting new products, we do not know if the completion will be successful, if the market place will accept the new concepts or if other conditions will prevent successful marketing. The computer software industry is a strong plus for our country which I believe is worth supporting with the R&D tax credit. Sincerely, JAMES E. GREENWOOD, President. Hon. CHARLES B. RANGEL, THE BUSINESS ROUNDTABLE, Chairman, Oversight Subcommittee, Ways and Means Committee, DEAR MR. RANGEL: I am writing to express my support and that of the Business Roundtable for a permanent R&D tax credit for qualified research and experimentation expenditures. I ask that this letter be made part of the record for the hearings which your Ways and Means Oversight Subcommittee is holding on August 2 and 3. The Business Roundtable believes that the roots of U.S. productivity increases and economic competitiveness lie in the capacity of the private sector to generate technological innovation. Research and development efforts are important determinants of innovation. While the United States continues to have the lead in basic research, indicators of R&D performance, such as the number of major world innovations or the number of U.S. patents granted to U.S. inventors, have been declining in the United States while rising in other countries. The incentive system is critical to the process of innovation. The tax credit for increase research and experimental expenditures was enacted in 1981 as a relatively inexpensive provision to encourage American companies to invest in relatively high risk research and experimental activities. Such activities are essential in development of new manufacturing processes to improve productivity and in the invention and commercalization of advanced products. The R&D credit is an important incentive and should be made permanent. Efforts to restrict the definition of R&D for purposes of the credit must be approached with caution and with close consultation with the R&D establishment. My personal support for the credit is based on the experience of the chemical industry in meeting competition worldwide. Strong emphasis on science and engineering-on both basic and applied research-has been characteristic of the chemical industry. It has led both to new products and the application of advanced technology in the manufacture of more mature ones. In the United States, for example, the chemical industry carries out a disproportionate amount of research. While it accounts for only 9 percent of U.S. manufacturing shipments, it does about 15 percent of all research and development carried out by industry and, in addition, some 35 percent of all basic R&D funded by industry. This strong emphasis on R&D helped the U.S. chemical industry remain a strong worldwide competitor, generating 36 percent of world chemical sales and a $9 billion trade surplus in 1983, despite problems associated with an overvalued U.S. dollar. There is concern that Congress will allow the R&D tax credit to expire on December 31, 1985 or extend it for a given number of years rather than make it permanent. If the credit is to have a maximum effect, the business community must have some assurance that the credit will be available in future years where commitments with a long lead time are made. Thus, the start of new projects isn 1985 could be delayed if there were no assurance that the credit would continue to be available after 1985. The Business Roundtable strongly supports efforts to reduce the federal deficit. However, we are also committed to sound tax incentives which make industry and our country more productive and competitive worldwide. Sincerely, Congressman DANIEL ROSTENKOWSKI, Rayburn House Office Building, Washington, DC. E.G. JEFFERSON, Chairman, Taxation Task Force. COMPUTER FINANCIAL CORP., DEAR CONGRESSMAN ROSTENKOWSKI: Our company has successfully financed the expansion of several "high-tech” companies, primarily with the leverage of the R&D tax deduction. Over one hundred new jobs were created in the Chicago area, financed by these partnerships. As you may know, provisions of the 1984 tax bill will kill the research and development partnership structure. Shouldn't public policy reward job creation and development of new products? Shouldn't the United States give greater support to its R & D efforts, like Japan has? Please try to change those provisions of the tax bill which prevent R & D deductions from exceeding the initial cash investment. Let us know your thinking regarding this important matter. Very truly yours, GEORGE B. FINK, President. STATEMENT OF THE CONSORTIUM OF SOCIAL SCIENCE ASSOCIATIONS Mr. Chairman, the Consortium of Social Associations (COSSA) is pleased to have the opportunity to submit the following testimony presenting our views on the tax credit for Research and Experimentation (Sections 221 and 222) of the Economic Recovery Tax Act of 1981 (ERTA). The Consortium represents 175,000 scientists across the full range of the social and behavioral science disciplines. A full list of COSSA Members, Affiliates and Contributors is attached to this testimony. COSSA would like to comment on two sections of the tax act concerning the credit: (1) the exclusion of the social sciences from the Research and Experimentation tax credit; and (2) the exclusion of the social sciences from qualifying for the use of donated scientific and technical property. (1) The exclusion of the social sciences from the Research and Experimentation tax credit limits the effectiveness of the legislation. Congress has expressed its desire that the United States help industrial research and development generate new high technology industrial products to promote economic growth in this country. One means of doing so is the tax credit for new Research and Experimentation in ERTA. However, the process of creating and employing new technologies is not merely mechanistic; it is also an inherently social process that depends heavily on human factors as well as machines. The development of new technologies is a product of both human and physical components. Social science research informs us about these human factors. There are many examples of the impact of social science research on improved productivity and better products. Human factors research in aviation and power plant design have contributed to improved design and placement of gauges and controls for maximum readability and efficiency of control. These are critical elements because many lives and millions of dollars in equipment depend upon rapid and accurate human judgment and performance. For example, cockpit design problems in the F-18 fighter aircraft were corrected on the basis of findings of social science research. In addition, social science experiments on worker productivity and quality control have led to effective techniques, utilized extensively by the Japanese, for linking participative decisionmaking and the acceptance of innovations in the workplace. Social science research is critical in the development of several major high technology areas such as robotics, where social scientists study human factors in the design and operation of industrial robots and the impact of robotics on worker morale and productivity, on unemployment, and on labor market dislocations. Another area where social scientists play a vital role is in the research on artificial intelligence in the development of supercomputers. Social scientists also contribute to the assessment of long-term risks associated with new technologies and to understanding the most efficient and productive environments for technological innovation. Finally, it is clear that the future use of new technological products will be as constrained by workers' skills, mobililty, and adaptability-all studied by social scientists-as by the availability of investment capital and technological quick-fixes. Einar Thorsrud, Director of the Work Research Institute of Norway, testified at hearings held by the House Subcommittee on Science, Research and Technology that the stimulation of new technologies requires "problem oriented research, where scientists are drawn together irrespective of discipline in "concrete collaboration . . . each bringing their contributions to solve complex problems." This collaboration cannot be achieved without expanding the industrial research and experimentation tax credit to include research done by social scientists. (2) The Congress has made clear its desire to help institutions of higher education modernize their equipment and facilities for training the country's new scientists and has provided for a tax credit for the donation of scientific equipment to universities. The social sciences are again excluded from this provision. However, research and training in the social sciences involves sophisticated methodologies and statistical approaches. These are fundamental for scientific research in all fields and at the same time contribute to our understanding of economic and technological development. Much of the equipment donated by industry to universities under this provision of the tax credit is in the general field of computers, which are used extensively by social scientists. For example, at the University of Michigan, some 35 percent of the total funded research usage at the university's computing facility is for research in the social sciences. Proportionally, social scientists use these computers almost as much as the natural and physical scientisits use them. It does not make sense to cut off whole disciplines, disciplines that depend on computers for research that contributes to economic development, from sharing in the provisions of the tax credit. For these reasons we request that as the debate continues on the extension of the research and development tax credit, that the definition of qualifying research, rather than being further restricted as in the Senate passed provisions of H.R. 4170, should be expanded to include the social sciences. |