period amount which generally is the preceding three year's qualifying R&D expenses. The ratio of said credit is 25 percent of the amount so qualified. The R&D tax credit was specifically enacted to address the problem of a declining

rate of investment by U.S. industry in research and development activities which threatens our competitivness in world

markets.

House Report No. 97-201, 97th Cong., 1st Sess. (1981) ("House Report") states (at p.111) that (i)n recent years, spending for [R&D] has not been adequate . ." and that the "Committee believes that the decline in this country's research and development activities has adversely effected economic growth, productivity gains, and our competitiveness in world markets." It further states that the Committee "believes that a substantial tax credit for incremental research and experimental expenditures will overcome the resistance of many businesses to bear significant costs of

research

I believe the reasons which existed for the enactment of the R&D tax credit legislation were accurate at the time of enactment and I believe that they exist today and will continue to exist throughout the balance of this century.

In

fact, the importance of a national dedication to research and development activities, particularly in the area of high technology, is imperative if we are to maintain our competitive position in the world economy.

In the high technology industries, the need for massive investments of capital resources in research and development activities has never been more evident.

We, in the high technology industries, face a formidable competitive threat from the Japanese high technology industry. Our Japanese competitors have access to a large amount of no-interest loans funded by MITI and other Japanese government agencies. The December 14, 1981 issue of Business Week magazine stated that "MITI will lend private industry nearly 500 million U.S. dollars in 1981 in no-interest loans through the Agency of Industrial Science and Technology." A large portion of those funds are directed toward research and development activities in the high technology industries. The 1981 funding by MITI was not

a one (1) year phenomenom. It is merely representative of a continuing commitment of the Japanese high technology industry, with the support and assistance of Japanese government to dominate this industry. The Japanese efforts in this area have been and continue to be very successful.

However, the

Japanese commitment to developing a strong high technology is but one example, as numerous European countries are taking a similar approach to developing their high technology industries. The R&D tax credit represents a reasonable approach to stimulating research and development activities in U.S. industry. Allowing this credit to expire January 1, 1986 would definitely have an adverse effect on the competitive position of U.S. industry in the world economy.

Speaking with regard to the high technology industry and specifically of the semiconductor industry, the R&D tax credit has been effective as a stimulus to increase R&D

Investments by semiconductor

activities, i.e., expenditures. manufacturers in R&D activities have continued to expand since the enactment of the R&D tax credit. At National Semiconductor Corporation, we have continued to increase our spending for R&D activities in each of the last eight (8) fiscal years (Exhibit I attached hereto). Even though economic conditions during the period since enactment of the R&D tax credit have been extremely poor, as we are all aware, we at National have increased our spending on research and development activities. For our fiscal year ending May 31, 1983, we will have expended

approximately $112 million on R&D activities in the face

of the worst profit performance we have realized over the past sixteen (16) years. The availability of the R&D tax

credit was certainly an element in our consideration of

these expenditures and will continue to influence our planning of future R&D expenditures.

We see an ever increasing need to commit even

larger amounts of our resources to research and development activities. Without innovative approaches to the research

and development demands of our industry, such as the cooperative research and development activities of the recently formed Semiconductor Research Corporation and the MCC (Microelectronics and Computer Technology Corporation) coupled with the benefits of R&D tax credits, we as an industry will not be able to maintain our competitive edge in the world high technology market place.

In summary, the high technology industry and more specifically, the semiconductor industry, support the extension of the R&D tax credit provision of Section 44F (a) of the I.R.C. of 1954. In fact, we would like to see the termination provisions of this legislation amended to provide for the indefinite extension of these tax credit provisions.