IN 1981 COLLIDED SQUARELY WITH THE RECESSION. ALSO, THE INFLATION RATE WERE CUTTING CAPITAL SPENDING. THIS TREND WAS EXPECTED TO CONTINUE DURING THE REPORT ALSO NOTED THE POSSIBILITY THAT R&D SPENDING COULD ACTUALLY RISE FASTER THAN ENVISIONED BY CURRENT PLANS. THIS IS BECAUSE PLANS FOR UPCOMING YEARS WERE MADE DURING THE DEPTHS OF THE RECESSION AND MIGHT WELL CHANGE AS THE RECOVERY PROCEEDS, AND ALSO BECAUSE IT WOULD BE CONSISTENT WITH PATTERNS IN RECENT HISTORY. THE R&D TAX CREDIT CANNOT TAKE ALL OF THE CREDIT FOR THIS NEW TREND, OF COURSE. THE JUMP IN R&D SPENDING WAS GETTING UNDERWAY EVEN BEFORE IT WAS PASSED. BUT I AM CONVINCED THAT IT CONSTITUTED AN IMPORTANT ADDITIONAL STIMULUS. I CAN SEE THE RESULTS IN THE HIGH TECHNOLOGY FIRMS IN MY OWN DISTRICT, COMPANIES LIKE WANG, DIGITAL, AND DATA GENERAL. THESE COMPANIES ARE REPORTING SIGNIFICANT INCREASES IN R&D SPENDING, INCREASES FAR BEYOND THE DOLLAR AMOUNT OF THE CREDIT. THESE INCREASES CAN BE SEEN BOTH IN ABSOLUTE DOLLARS AND AS AN INCREASING PERCENTAGE OF SALES--AT A TIME WHEN SALES THEMSELVES ARE ALSO GROWING. I HAVE RECEIVED TESTIMONY FROM ONE OF THESE COMPANIES, M/A COM, INC., I THINK WE SHOULD MAKE SURE THAT THIS TREND CONTINUES. A SHORT SPURT HY ELIMINATE THE SUNSET NOW? WHY NOT WAIT UNTIL CLOSER TO 1985, WHEN WE CAN BE MORE SURE OF EXACTLY HOW THE TAX CREDIT IS WORKING? FOR ONE VERY IMPORTANT REASON: WE MUST CREATE A CLIMATE OF CERTAINTY FOR THE BUSINESSES ANOTHER ARGUMENT MIGHT BE THAT WE SHOULD WAIT AND SEE WHAT THE ECONOMY LOOKS LIKE BEFORE EXTENDING THE CREDIT. WE'VE ALL BEEN WORRYING ABOUT WHAT THE DEFICIT IS GOING TO LOOK LIKE IN THE "OUT YEARS," AND THERE HAS BEEN TALK ABOUT MAKING SURE THAT TAXES AREN'T CUT ANY FURTHER DURING THOSE YEARS. THE R&D TAX CREDIT IS ESTIMATED TO COST CLOSE TO A BILLION A YEAR, AND I UNDERSTAND THAT A STUDY BY THE NATIONAL SCIENCE FOUNDATION RAISES THE POSSIBILITY THAT THE REVENUE LOSS WILL BE ABOUT TWICE THE JOINT TAX COMMITTEE ESTIMATES. BUT WHETHER THE FIGURE IS ONE BILLION OR TWO BILLION, I THINK THAT THE BENEFITS OF THE CREDIT ARE WELL WORTH THE PRICE. THIS IS A COST-EFFECTIVE MEASURE. THE RETURNS TO TNE ECONOMY IN INCREASED PRODUCTIVITY, INNOVATION, AND COMPETITIVENESS COULD FAR EXCEED THE COST OF PROVIDING THE INCENTIVE. BY CONTRAST, THE ACRS AND LEASING PROVISIONS, EVEN AFTER TEFRA, WILL COST US $16 BILLION THIS YEAR AND $29 BILLION BY 1985, AND THE ECONOMIC BENEFITS HAVE PROVEN TO BE UNCERTAIN AT BEST. THE P&D TAX CREDIT IS A PERFECT EXAMPLE OF HOW A GOOD TAX EXPENDITURE SHOULD WORK. IT IS SPECIFICALLY TARGETED. IT IS COST EFFECTIVE. IT PROVIDES A CLEAR SIGNAL OF A GOVERNMENT POLICY ON WHICH THERE IS A WIDESPREAD CONSENSUS. BUT IF IT CONTINUES TO BE HAMPERED BY THE SUNSET PROVISION, IT CANNOT, BECAUSE OF THE RESULTING UNCERTAINTY, CONTINUE TO WORK IN THE MANNER IN WHICH IT WAS INTENDED AND ITS BENEFICIAL EFFECTS MAY BE ONLY TEMPORARY. IT IS ESSENTIAL THAT WE ACT NOW TO KEEP THIS IMPORTANT PROVISION IN PLACE AS A PERMANENT PART OF THE TAX CODE, o Expanding research & development is important to the future of the United States and to M/A-COM; without R&D, industrial units rapidly become non-competitive. OM/A-COM R&D is directly responsible for our company's leadership and success by producing new products and processes in the telecommunications, defense and health fields. The R&D tax credit has, by itself, stimulated us to make a greater financial commitment to R&D than we otherwise would have, which we expect will make us more competitive in international as well as domestic markets. Refusal to make the credit permanent would tell corporate management that R&D is no longer a national priority; this would be the wrong signal to send. M/A-COM, Inc., South Avenue, Burlington, MA 01803, (617) 272-9600 |