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STATEMENT OF KEVIN T. CONSIDINE, DIRECTOR OF THE APPLIED RESEARCH GROUP, TEKTRONIX, INC., BEAVERTON, OREG., ON BEHALF OF COMPUTER AND BUSINESS EQUIPMENT MANUFACTURERS ASSOCIATION, WASHINGTON, D.C.

Mr. CONSIDINE. Good morning, Mr. Chairman. My name is Kevin Considine, and I am the director of the Applied Research Group of Tektronix, in Beaverton, Oreg. I am appearing today on behalf of the Computer and Business Equipment Manufacturers Association, CBEME, an association composed of 42 manufacturers of computer systems, sophisticated business equipment and other high technology electronics products. I welcome this opportunity to appear before this subcommittee. I, too, might mention that I am on my maiden voyage.

Let me summarize CBEMA's positions on the various tax bills which are before this subcommittee. First, we support very strongly S. 738, which would make the R&D tax credit permanent. We support S. 654, which provides that deductions for U.S. R&D expenses will be allocated to U.S. source income and deducted from such income in determining U.S. source of taxable income. We would especially like to compliment Senator Bob Packwood, the chairman of this subcommittee, for his leadership in supporting this bill. And third, we support tax incentives that encourage private support of scientific education and university basic research, and believe that S. 1194 and S. 1195 offer constructive proposals to encourage corporations to take a leading role in providing such support.

Because of time constraints, I will address only the most important of these measures, the R&D credit. The fundamental characteristic of U.S. high technology electronic companies, which distinguishes this industry from other U.S. industries, is the overriding need to continually invest in major research endeavors to develop and apply new technologies and products in order to survive. Â very significant portion of the sales of many CBEMA members, as well as many other companies in this industry, lies in products that were not even in existence just a few years ago. In this highly competitive environment, an electronics company which fails to continuously advance technologically will find that its products have been rendered obsolete by foreign competitors, and that its markets have disappeared.

SBEMA members and other high technology companies may invest as much as 8 to 10 percent of their revenues annually in R&D, over three to four times the percentage invested by U.S. industry in general. Tektronix, in fiscal year 1982, invested almost $110 million in R&D out of sales totaling $1.2 billion. That represented an $18 million increase in R&D investments over the previous year. For these reasons, we support very strongly S. 738, which makes the R&D tax credit permanent. Indeed it is the paramount tax legislation priorities for CBEMA members for this Congress.

Having enacted the R&D credit and thereby encourage companies to incur R&D risks which they otherwise might have been unwilling to bear, Congress should not reverse this R&D tax incentive by allowing the credit to lapse. The permanence of the tax credit would tip the scales in favor of going ahead sometimes on sizable

projects, and thereby seizing opportunities that otherwise would be foregone.

When a company such as my own is determining where to invest its resources, there always arise the question of balancing the short term and the long term. The short term always seems to have a greater sense of urgency associated with it, and therefore is the bias toward cutting into the long-term programs.

The R&D tax incentive addresses this issue directly. It can and does encourage investment in long-term areas of an R&D strategy. For example, at Tektronix we have developed the leadership position in gallium arsenide technology, a technology that enables us to manufacture very high performance semiconductor chips. The position we currently enjoy in this technology is a direct result of Tektronix investing heavily over the last few years in what initially was a very speculative program.

In a similar example, we recently announced a completely new way of making high-resolution color displays, an area where the United States has had strong foreign competition. Once again, this advance comes at the end of a number of years of heavy investment. It is still too early to judge the full effectiveness of the R&D credit, but R&D spending has remained strong, faring relatively well when compared with the budgets of most other corporate departments, despite the high degree of economic uncertainty, high interest rates and lower profit levels.

The R&D tax credit was of immense value in maintaining and increasing R&D investments during this economic downturn. Thank you.

Senator DANFORTH. Thank you, sir.

[The prepared written statement of Mr. Considine follows:]

STATEMENT OF KEVIN T. CONSIDINE

DIRECTOR OF APPLIED RESEARCH GROUP
TEKTRONIX, INC.

ON BEHALF OF

THE COMPUTER AND BUSINESS EQUIPMENT MANUFACTURERS ASSOCIATION
(CBEMA)

Before the

Subcommittee on Taxation and Debt Management
of the Senate Finance Committee

May 27, 1983

My name is Kevin T. Considine. I am Director of the Applied Research Group of Tektronix, Inc., located in Beaverton, Oregon. appearing today on behalf of the Computer and Business Equipment Manufacturers Association (CBEMA), an association composed of 42 manufacturers of computer systems, sophisticated business equipment, and other high technology electronics products. I welcome this opportunity to appear before this subcommittee on behalf of CBEMA and its members and to offer our views on the tax bills you are

considering.

I am

Research and development (R&D) is a fundamental tool toward the dual goals of preserving U.S. high technology leadership and maintaining U.S. economic well-being. To encourage R&D activities among U.S. companies, CBEMA recommends these actions:

First, and of utmost importance, we support very strongly making permanent the R&D tax credit. It is a major tool through which the U.S. government can encourage productivity gains and

maintain U.S. technological competitiveness.

Second, we support the treatment of deductions for R&D expenses attributable to U.S. activities as allocatable to U.S.-source

income.

Third, we support tax incentives that encourage private support of scientific education and university research.

To understand why these three measures

tax credit

role of R&D in today's high technology companies.

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and especially a permanent

are so important, let me give you some background on the

I. BACKGROUND RESEARCH AND DEVELOPMENT IN THE U.S. HIGH TECHNOLOGY

ELECTRONICS INDUSTRY

The fundamental characteristic of U.S. high technology electronics companies, which distinguishes this industry from other U.S. industries, is that these electronics companies must continually invest in major research endeavors to develop and apply new technologies and products in order to survive. Competition in both U.S. and world markets among high technology electronics manufacturers is intense and is focused, to a great degree, between U.S. companies and foreign competitors. In this highly competitive environment, an electronics company which fails to continuously advance

technologically will find that its products have been rendered

obsolete by foreign competitors.

Its markets will disappear.

significant portion of the sales of many CBEMA members, as well as many other companies in the high technology electronics industry, lies in products that were not even in existence just a few years ago.

A very

A firm's ability to develop and apply "breakthrough" products and technologies is critical to obtaining a competitive advantage. For example, a year's advantage in introducing a new product often can provide the company with as much as a 20-25 percent cost advantage over competing companies. Conversely, a year's lag in introducing a product places a company at a significant disadvantage vis-a-vis its competitors. Accordingly, U.S. high technology electronics companies are locked in a continuous, intensive race with foreign competitors most of which are highly subsidized by their governments to bring new or improved products and manufacturing processes to the marketplace as soon as possible.

Given this fast pace at which the high technology electronics industry is evolving, each company must devote very substantial efforts to R&D. CBEMA members and other high technology companies may, on the average, invest as much as 8 to 10 percent of their revenues annually in R&D over 3 to 4 times the percentage invested by U.S. industry in general. For example, Tektronix in fiscal year 1982 invested almost $110 million in R&D activities out of sales totaling $1.2 billion. This R&D spending represented an $18 million increase in R&D investments over fiscal 1981, in which year Tektronix invested more than $91

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