Growing support
     The R&D tax credit, which expired June 30, provides companies with a 20 percent credit above a base amount for qualified research and development expenses, such as in-house salaries, wages and supplies, and a portion of contract R&D expenses. The research covered by the credit must be aimed at the development of a new or improved business idea and based on qualified research and development expenditures from 1984-1988.
     Companies also can choose to take the Alternative Incremental Research Credit, which allows companies to base the credit on a different benchmark period other than the 1984-1988 period covered in the original tax credit.
     The high-tech industry and other supporters of the tax credit argue that companies do not take full advantage of it because short-term extensions have made it difficult for them to plan and invest in long-term projects.
     "The temporary nature of the credit deprives company decision makers of the certainty necessary for making risky, long-term projects," said Carol Cayo, director of government affairs for the Information Technology Association of America.
     That message has been heard on Capitol Hill where several bills have been introduced to permanently extend the tax credit.
     Support for a permanent R&D credit has been growing, with 45 Senators supporting the most popular bill S. 680, sponsored by Sen. Orrin Hatch, R-UT, while 159 lawmakers have co-sponsored the House companion bill, H.R. 835, introduced by Rep. Nancy Johnson, R-TX. Both bills also include a one- percent increase in the Alternative Incremental Research Credit.
     "It's irresponsible for the credit to be a yo-yo," said Sen. Max Baucus, D-MT, chief co-sponsor of S. 680.
     Pointing to a projected budget surplus and the growing awareness and support on Capitol Hill for high-tech industry priorities, supporters were optimistic that this would finally be the year that Congress would put an end to the annual push to reauthorize the R&D tax credit by making it permanent.
     In past years, "there has never been enough money to pay for it," said Bill Sample, chairman of the R&D Credit Coalition and Microsoft's senior director for taxation. "This is the first year we've had enough."
     Industry got a boost from one of Congress's favorite economists when Federal Reserve Chairman Alan Greenspan said during a hearing in June that if lawmakers are going to continue to pass an R&D tax credit, they ought to make it permanent.
     House Ways and Means Committee Chairman Bill Archer, R-TX, included a five-year extension in his massive tax cut bill, H.R. 2488, which the House is considering Wednesday. An aide to Archer said it seemed like a good amount and would enable lawmakers to revisit the issue in a few years.
     The Senate Finance Committee began marking up Chairman William Roth Jr., R-DE's, $792 billion tax cut package Tuesday. In explaining why he opted for a five-year extension instead of a permanent credit, Roth said he tried to accommodate industry as best he could while still including other priority items.
     "To get everything in, five years was as far as we thought we could go," Roth said.

R—D Along Pary Lines
     Senate and House Democrats appear to be trying to gain an edge with the industry by giving in to high-tech company pleas by including a permanent extension in their scaled-back tax cut bills, an issue they appear ready to use against Republicans.
     "Republicans have been running around (saying) how they are the party of technology," said Eric London, a spokesman to House Minority Leader Richard Gephardt, D-MO. "When you look at real issues that matter (such as the R&D tax credit), Democrats in some cases are better than Republicans."
     A Democratic tax cut plan proposed by House Democratic leaders would provide a permanent R&D extension, contingent on Medicare and Social Security's solvency. The House New Democrats Coalition also proposed a permanent extension of the R&D tax credit.
     Still, the credit does have some critics. Citizens Against Government Waste says despite its popularity, the R&D tax credit is just another form of corporate welfare.
     "We think that given the state of the technology industry today and…American industry in general, there's all kinds of money and capital out there" for research, said the group's spokesman Aaron Taylor. "They don't need to come hat in hand to the federal government."

Political Uncertainty
     With the tax debate still to be fully played out, even supporters acknowledge that they can be certain of nothing until a tax bill is signed into law.
     While declining to give up completely, industry officials acknowledge that it is unlikely Congress will provide a permanent renewal given that Republican tax writers did not include one in their bills.
     "It will be very tough," said Karen Myers, director of tax policy for EDS and co-chairwoman of the R&D Credit Coalition's government affairs committee. "We're still holding out hope. If it can be accommodated in a smaller Democratic package, it can in a smaller (compromise) tax bill."
     Even if Democrats and Republicans attempt to forge a compromise tax package, it will likely be much smaller than the GOP plans, making it more difficult to include such an expensive tax item. At a cost of more than $20 billion, based on a 10-year budget, it could be among the most costly items in a scaled back tax package.
     "The R&D tax credit will never be eliminated but as far as longer extensions, that becomes harder to do" in a smaller tax bill, said a Republican congressional staffer familiar with the issue.
     Extenders, tax credits renewed on a temporary basis, are often the first items tax writers look to scale back when trying to find ways to pay for other provisions, the staffer and others said.
     "When you get to a smaller tax bill, a lot of nuances come to play," said Senate Budget Committee Chairman Pete Domenici, R-NM, the sponsor of a bill, S. 951, which would permanently extend and expand the current R&D tax credit.
     Still, Mark Weinberger, the R&D Credit Coalition's counsel, argues that one of the key things the credit has going for it is the fact that both party's favor a long-term extension. And others are still confident Congress will provide a five-year extension.
     The Clinton Administration has indicated that it may be able to support the Senate Democrat's tax package, crafted by the Finance Committee's ranking member, Daniel Patrick Moynihan, D-NY, and others. The president proposed a permanent extension of the R&D tax credit in 1993 but abandoned the effort after lawmakers used the offsets identified in his plan for other purposes, according to an administration official.