Mr. President, back in 1962, Marshall McLuhan wrote, ``The new electronic interdependence recreates the world in the image of a global village.'' Certainly, 40 years later, that concept is truer than ever. As we prepare for the future in…
Mr. President, back in 1962, Marshall McLuhan wrote, ``The new electronic interdependence recreates the world in the image of a global village.'' Certainly, 40 years later, that concept is truer than ever. As we prepare for the future in this global village, we need to affirm America's leadership role in the world.
The United States accounts for one-third of the world's spending on scientific research and development, ranking first among all countries. While this is impressive, relative to GDP, though, the United States falls to sixth place. And the trends show that maintaining American leadership in the future depends on increased commitment to research and science.
Asia has recognized this. Asia is plowing more funding into science and education. China, in particular, understands that technological advancement means security, independence, and economic growth. Spending on research and development has increased by 140 percent in China, Korea and Taiwan. In America, it has increased by only 34 percent.
Asia's commitment is already paying off. More than a hundred Fortune 500 companies have opened research centers in India and China. I have visited some of them. I was impressed with the level of skill of the workers I met there.
China's commitment to research, at $60 billion in expenditures, is dramatic by any measure. Over the last few years, China has doubled the share of its economy that it invests in research. China intends to double the amount
committed to basic research in the next decade. Currently, only America beats out China in numbers of researchers in the workforce.
Today, I am pleased to introduce the Research Competitiveness Act of 2007. This bill would improve our research competitiveness in four major areas. All four address incentives in our tax code. Government also supports research through federal spending. But I am not addressing those areas today.
First, my bill improves and simplifies the credit for applied research in section 41 of the tax code. This credit has grown to be overly complex, both for taxpayers and the IRS. Beginning in 2008, my bill would create a simpler 20 percent credit for qualifying research expenses that exceed 50 percent of the average expenses for the prior 3 years.
And just as important: The bill makes the credit permanent. Because the credit has been temporary, it has simply not been as effective as it could be. Since its creation in 1981, it has been extended 11 times. Congress even allowed it to lapse during one period.
The credit last expired in December of 2005. After much consternation and delay, Congress passed a two-year extension just last month, extending the credit for 2006 and 2007. These temporary extensions have taken their toll on taxpayers. In 2005, the experts at the Joint Committee on Taxation wrote: ``Perhaps the greatest criticism of the R&E credit among taxpayers regards its temporary nature.'' Joint Tax went on to say, ``A credit of longer duration may more successfully induce additional research than would a temporary credit, even if the temporary credit is periodically renewed.''
Currently, there are three different ways to claim a tax credit for qualifying research expenses. First, the ``traditional'' credit relies on incremental increases in expenses compared to a mid-1980s base period. Second, the ``alternative incremental'' credit measures the increase in research over the average of the prior 4 years.
Both of these credits have base periods involving gross receipts. Under the new tax bill enacted last month, a third formula was created, which does not rely on gross receipts and is available only for 2007. My bill simplifies these credits by using this new credit only, known as the ``Alternative Simplified Credit,'' based on research spending without reference to gross receipts. The current formulas hurt companies that have fluctuating sales. And it hurts companies that take on a new line of business not dependent on research.
This new, simpler formula in my bill would not start until 2008. That start date would give companies plenty of time to adjust their accounting.
The main complaint about the existing credits is that they are very complex, particularly the reference to the 20-year-old base period. This base period creates problems for the taxpayer in trying to calculate the credit. And it creates problems for the IRS in trying to administer and audit those claims.
The new credit focuses only on expenses, not gross receipts. And it is still an incremental credit, so that companies must continue to increase research spending over time. Further, this bill adds a mandate for a Treasury study to look at substantiation issues and ensure that current recordkeeping requirements assist the IRS without unduly burdening the taxpayer.
A tax credit is a cost-effective way to promote R&E. A report by the Congressional Research Service finds that without government support, investment in R&E would fall short of the socially optimal amount. Thus CRS endorses Government policies to boost private sector R&E.
Also, American workers who are engaged in R&E activities benefit from some of the most intellectually stimulating, high-paying, high-skilled jobs in the economy.
My own State of Montana has excellent examples of this economic activity. During the 1990s, about 400 establishments in Montana provided high-technology services, at an average wage of about $35,000 per year. These jobs paid nearly 80 percent more than the average private sector wage, which was less than $20,000 a year during the same period. Many of these jobs would never have been created without the assistance of the R&E credit.
My research bill would also establish a uniform reimbursement rate for all contract and consortia R&E. It would provide that 80 percent of expenses for research performed for the taxpayer by other parties count as qualifying research expenses under the regular credit.
Currently, when a taxpayer pays someone else to perform research for the taxpayer, the taxpayer can claim one of three rates in order to determine how much the taxpayer can include for the research credit. The lower amount is meant to assure overhead expenses that normally do not qualify for the R&E credit are not counted. Different rates, however, create unnecessary complexity. Therefore, my bill creates a uniform rate of 80 percent.
The second major research area that this bill addresses is the need to enhance and simplify the credit for basic research. This credit benefits universities and other entities committed to basic research. And it benefits the companies or individuals who donate to them. My bill provides that payments under the university basic research credit would count as contractor expenses at the rate of 100 percent.
The current formula for calculating the university basic research credit--defined as research ``for the advancement of science with no specific commercial objective''--is even more complex than the regular traditional R&E credit. Because of this complexity, this credit costs less than one-half of 1 percent of the cost of the regular R&E credit. It is completely underutilized. It needs to be simplified to encourage businesses to give more for basic research.
American universities have been powerful engines of scientific discovery. To maintain our premier global position in basic research, America relies on sustained high levels of basic research funding and the ability to recruit the most talented students in the world. The gestation of scientific discovery is long. At least at first, we cannot know the commercial applications of a discovery. But America leads the world in biotechnology today because of support for basic research in chemistry and physics in the 1960s. Maintaining a commitment to scientific inquiry, therefore, must be part of our vision for sustained competitiveness.
Translating university discoveries into commercial products also takes innovation, capital, and risk. The Center for Strategic and International Studies asked what kind of government intervention can maintain technological leadership. One source of technological innovation that provides America with comparative advantage is the combination of university research programs, entrepreneurs, and risk capital from venture capitalists, corporations, or governments. Research clusters around Silicon Valley and North Carolina's Research Triangle exemplify this sort of combination.
The National Academies reached a similar conclusion in a 2002 review of the National Nanotechnology Initiatives. In a report, they wrote: ``To enhance the transition from basic to applied research, the committee recommends that industrial partnerships be stimulated and nurtured to help accelerate the commercialization of national nanotechnology developments.''
To further that goal, the third major area this bill addresses is fostering the creation of research parks. This part of the bill would benefit state and local governments and universities that want to create research centers for businesses incubating scientific discoveries with promise for commercial development.
Stanford created the nation's first high-tech research park in 1951, in response to the demand for industrial land near the university and an emerging electronics industry tied closely to the School of Engineering. The Stanford Research Park traces its origins to a business started with $538 in a Palo Alto garage by two men named Bill Hewlett and Dave Packard. The Park is now home to 140 companies in electronics, software, biotechnology, and other high tech fields.
Similarly, the North Carolina Research Triangle was founded in 1959 by university, government, and business leaders with money from private contributions. It now has 112 research and development organizations, 37,600 employees, and capital investment of more than $2.7 billion. More recently,
Virginia has fostered a research park now housing 53 private-sector companies, nonprofits, VCU research institutes, and state laboratories. The Virginia park employs more than 1,300 people.
The creation of these parks would seem to be an obvious choice. But it takes a significant commitment from a range of sources to bring them into being. To foster the creation and expansion of these successful parks, my bill will encourage their creation through the use of tax- exempt bond financing. Allowing tax-exempt bond authority would bring down the cost to establish such parks.
Foreign countries are emulating this successful formula. They are establishing high-tech clusters through government and university partnerships with private industry.
Back in 2000, a partnership was formed to foster TechRanch to assist Montana State University and other Montana-based research institutions in their efforts to commercialize research. But TechRanch is desperately in need of some new high-tech facilities. It could surely benefit from a provision such as this. I encourage my Colleagues to visit research parks in their states to see how my bill could be helpful in fostering more successful ventures.
A related item is a small fix to help universities that use tax- exempt bonds to build research facilities primarily for federal research in the basic or fundamental research area. Some of these facilities housing federal research--mostly NIH and NSF funded projects--are in danger of losing their tax-exempt bond status. Counsel have notified some state officials that they may be running afoul of a prohibition on ``private use'' in the tax code, because one private party has a superior claim to others in the use of inventions that result from research.
The complication comes from a 1980 law. In 1980, Congress enacted the Patent and Trademark Law Amendments Act, also known as the Bayh-Dole Act. The Bayh-Dole Act requires the Federal Government to retain a non- exclusive, royalty-free right on any discovery. In order to foster more basic research through Federal-state-university partnerships, we need to clarify that this provision of the Bayh-Dole act does not cause these bonds to lose their taxexempt status. And my bill directs the Treasury Department to do so. I understand that the Treasury Department is aware of this significant concern. Whether or not Congress enacts my legislation, I hope that the Treasury Department will clarify the situation soon.
The fourth major area that my bill addresses is innovation at the small business level. Last year, representatives of a number of small nanotechnology companies came to visit me. They told me that their greatest problem was surviving what they called the ``valley of death.'' That's what they called the first few years of business, when an entrepreneur has a promising technology but little money to test or develop it. Many businesses simply do not survive the ``valley of death.'' I believe that Congress should find a way to assist these businesses with promising technology.
Nanotechnology, for instance, shows much promise. According to a recent report, over the next decade, nanotechnology will affect most manufactured goods. As stated in Senate testimony by one National Science Foundation official last year, ``Nanotechnology is truly our next great frontier in science and engineering.'' It took me a while to understand just what nanotechnology is. But it is basically the control of things at very, very small dimensions. By understanding and controlling at that dimension, people can find new and unique applications. These applications range from common consumer products-- such as making our sunblocks better--to improving disease-fighting medicines--to designing more fuel-efficient cars.
So, to help these small businesses convert their promising science into successful businesses, my bill would establish tax credits for investments in qualifying small technology innovation companies. These struggling start-up ventures often cannot utilize existing incentives in the tax code--like the R&E tax credit--because they have no tax liability and may have little income for the first few years. They need access to cheap capital to get through those first few research- intensive years.
The credit in my bill would be similar to the existing and successful New Markets Tax Credit. The New Markets Credit has provided billions of dollars of investment to low-income communities across the country. In my bill, entities with some expertise and knowledge of research would receive an allocation from Treasury to analyze and select qualifying research investments. These investment entities would then target small business with promising technologies that focus the majority of their expenditures on activity qualifying as research expenses under the R&E credit.
In sum, my bill would boost both applied and basic research. It would boost research by businesses big and small. And it would foster research by for-profit and non-profits alike.
McLuhan's quote about the global village was taken by many at the time as a wake-up call to a changing world. Since then, many more leaders in this village have emerged. Let us work to see that the next big technological advance is discovered here in America. Only through continued commitment to research can We ensure that it is.
Mr. President, there is a monster in the tax code. Like Frankenstein, the Alternative Minimum Tax brings back to life higher taxes. Higher taxes that families had been told not to worry about are brought back because of the Alternative Minimum Tax, or AMT. It is a monster that really cannot be improved. It cannot be made to
work right. It is time to draw the curtain on this monster.
That is why I am pleased to join with my friend Chuck Grassley, and our fellow Committee colleagues, Senators Schumer, Kyl, and Crapo to introduce legislation today that will repeal the individual AMT. Our bill simply says that beginning January 1, 2007, individuals will owe zero dollars under the AMT. Further, our bill provides that individuals with AMT credits can continue to use those credits up to 90 percent of their regular tax liability.
If we don't act, in 2007, the family-unfriendly AMT will hit middle- income families earning $61,000 with three children. What was once meant to ensure that a handful of millionaires did not eliminate all taxes through excessive deductions is now meaning millions of working families, including thousands in my home State of Montana, are subject to a higher stealth tax. It is truly bizarre that we've designed a tax that deems more children ``excessive deductions'' and punishes duly paying your State taxes. Already, 5,000 Montana families pay a higher tax because of the AMT. But this number could multiply many times over if we don't act soon.
Not only is the AMT unfair and poorly targeted, it is an awful mess to figure out. The National Taxpayer Advocate has singled out this item as causing the most complexity for individual taxpayers.
Of course, repeal does not come without cost and that cost is significant even if we assume the 2001 and 2003 tax cuts aren't extended. We are committed to working together to identify reasonable offsets. Certainly, I don't think we want a tax system unfairly placing a higher tax burden on millions of middle-income families with children. But it doesn't serve those families either if our budget deficit is significantly worse.
Like Frankenstein's monster, the AMT brings a most unpleasant reaction from those whom it encounters. It is time we end this drama and repeal the AMT.
Mr. President, I am pleased today to introduce the Trade Adjustment Assistance Improvement Act of 2007 with my good friend and colleague, Senator Norm Coleman.
In 2006, the United States passed, signed or concluded no fewer than five new free trade agreements. This June, the President's authority to negotiate trade agreements will expire. Congress should extend the President's authority to negotiate these deals. But when we do, we must raise the bar higher than before. Each deal must surpass the last, in order to take advantage of and adjust to changes in the global marketplace that affect American businesses and workers.
Congress will consider these agreements on their merits. In most cases, these deals will mean more access for American producers and service providers. In some few cases, these agreements could mean more and fiercer competition for producers and providers here at home.
Competition is the engine that drives market economies like ours. It spawns innovation and creates new jobs. But just as jobs are created in new sectors of our economy, jobs are also lost in other sectors which experience sudden or unfair competition from abroad.
Whether and how effectively we help those firms and workers who feel the negative effects of our national trade policy will, in large part, determine whether and how effectively we can move a trade agenda forward this year.
During the last several Congresses, we have experienced unprecedented change in the global marketplace and in our labor market at home. I have worked to raise the bar on our efforts to help workers affected by these changes. Today, I propose again, more urgently than ever, that Congress and the administration work together to adapt our national worker adjustment strategies to the challenges of globalization. The Trade Adjustment Assistance Improvement Act is a first and necessary step in that direction.
The Trade Adjustment Assistance Improvement Act includes many proposals that Congress should consider before the program expires this September. The Act extends coverage to more of the workers who are affected by trade and globalization. And the Act will improve the overall efficiency and effectiveness of the program.
For more than a century, the manufacturing sector drove the American economy. So, when President Kennedy decided to open the American economy to more trade, he established the Trade Adjustment Assistance program to help workers in the manufacturing sector adjust to change.
Today, our economy depends upon service exports. More than 75 percent of the American labor force work in services. While many service sector jobs cannot be outsourced, technology change makes it possible to provide many services remotely, in such fields as accounting, healthcare, and computers and information technology. So when a large call center left Kalispell, Montana, three years ago for Canada, the Montana workers left behind did not have access to the same benefits that workers laid off from the Columbia Falls Aluminum manufacturing plant did. They should have.
Last year, the Department of Labor agreed, for the first time ever, that workers who produce software, an intangible product, should be eligible for Trade Adjustment Assistance. That was a step in the right direction. We should take the next step this year. We should finally extend coverage to American service workers. That is what my bill proposes.
Trade Adjustment Assistance certification takes place on a case-by- case, plant-by-plant basis. This means that while two factories producing the same products may both experience foreign competition that leads to layoffs, often only one of those factories' laid off workers gets certified as eligible for the program.
Consider the softwood lumber industry. At least 12 out of 35 Trade Adjustment Assistance petitions filed by workers in Montana's softwood lumber industry over the last 7 years were denied by the Department of Labor. Yet, all of these mills were similarly affected by the same market conditions--dumped and subsidized Canadian imports. The International Trade Commission found that Canadian imports injured or threatened to injury the softwood lumber industry on a national scale.
But the Department of Labor's certification process does not take into account the bigger--and often more meaningful--picture. It simply relies on data provided by individual companies that lay off the workers to make its case-by-case determination.
The legislation that I introduce today makes industry-wide certification automatic for workers anywhere in the United States if the President, the International Trade Commission, or another qualified Federal agency determines that imports are harming that industry. My bill also authorizes, but does not require, the Secretary of Labor to make industry-wide determinations if she receives three or more petitions in one industry within one 6-month period, or if the Senate Finance Committee and the House Ways and Means Committee pass a resolution requesting such an investigation.
We can anticipate and in some cases even prevent displacements by renewing and expanding our commitment to small and medium-sized American companies looking to recapture their competitive edge. One key, yet small program that can help prevent displacements and shifts in production to overseas is the TAA for Firms program in the Department of Commerce. The Firms program reaches out to companies that have experienced decreasing sales or production due to import competition and have laid off or expect to lay off workers.
This program is chronically under-funded, and it should also be available to service sector firms. This bill would authorize $50 million for this program to reach more small- and medium-sized businesses across the nation before they are forced to lay off their American workers and close their doors.
This bill also moves the Firms program from the Economic Development Administration at Commerce back into the International Trade Administration. That's where it was previously. And frankly that's where it ought to have remained. Despite the Firms program's proven track record, proposals related to the program under the Economic Development Administration have sought to either defund the program altogether, or to limit eligibility by increasing the profit-loss margin required for participation and arbitrary termination of firms after 2 years. The Firms program is a trade program and should be administered by an agency whose primary mission is to help American companies to adjust to and benefit from trade.
In 2002, with the passage of the Trade Adjustment Assistance Reform Act, I had great expectations for our first wage insurance demonstration project. In theory, wage insurance--or Alternative Trade Adjustment Assistance--encourages swift re-entry into the workforce by replacing a portion of a worker's lost wages when a worker accepts a lower paying job within 6 months of a layoff. Workers who choose wage insurance over traditional Trade Adjustment Assistance training and income assistance often have less access to good training or simply cannot afford to be out of work during their training. Wage insurance provides an incentive for employers to hire lower-skilled and older workers and train them on the job.
In practice, I have been disappointed with the Department of Labor's implementation of the wage insurance proposal that we crafted in 2002. In a 2004 review by the Government Accountability Office, the Department of Labor's implementation of the benefit came up far short of the mark. Last
year, the Government Accountability Office once again found that the Department needed to improve its implementation, focusing specifically on its outreach to and direction of state employment service offices.
I hope to work with the Department of Labor on strategies that will improve its outreach. Wage insurance can help put people back to work, and can even save money over traditional Trade Adjustment Assistance. But it cannot do either of those things if no one knows about the benefit.
This bill streamlines the process to qualify for wage insurance, and lowers the eligible age from 50 to 40. Wage replacement should be available to younger workers who would re-enter the workforce more quickly if they could afford the often steep wage cut.
Another key component of the Trade Adjustment Assistance Reform Act was the health care tax credit to help displaced workers and some retirees maintain access to health insurance coverage. As health costs grow, losing health insurance can be as financially devastating to workers as losing a job. While I still believe that the TAA health care tax credit holds promise, this is clearly an area where reforms are needed to help the credit achieve its purpose.
Today, the TAA health care tax credit helps only a fraction of the hundreds of thousands eligible for assistance. In its first 2 years, less than 6 percent of eligible workers and retirees enrolled. A GAO report released last year studying five major plant closings in 2003 and 2004 found that only 3 to 12 percent of eligible workers enrolled. More than half of the workers studied didn't sign up for the tax credit because the 65 percent subsidy was too low to make health coverage affordable.
The tax credit also suffers from complexity and administrative red tape. More than half of eligible workers in GAO's recent study didn't even know about the benefit. About a third of workers who knew about the benefit decided not to enroll because it was too confusing. Even those who understand it have to navigate complex rules and requirements to get the benefit.
We need to make this program simpler, more affordable, and more seamless so that more workers can take it up in the years ahead. We need to improve the information that workers and retirees get about the program and create systems to ensure that they get it. We need to cut down on the red tape. And we need to look at options to make this benefit more affordable so that we can truly reach the hundreds of thousands eligible for this benefit that Congress intended to help when we enacted these reforms 4 years ago. I plan to introduce a bill later in the year that will achieve these goals for reforming the health care tax credit and will look forward to working with Senator Coleman and other colleagues in this effort.
The forces of globalization, like trade and technology change, have created tremendous opportunities for American businesses and workers, from cutting the cost of living to increasing the margin of profit. Trade accounts for a quarter of our gross domestic product. The adjustments we have made to maximize trade's benefits save the average American household $9,000 annually.
But we must also make adjustments to respond to the challenges that come with globalization. American businesses in the 21st century face rapidly-changing consumer preferences and ever-swifter technological advances. Global competition is fierce. Innovation is the key to these companies' continued prosperity.
The same holds true for American workers. They know that they must adjust to changes in the labor market if they are to maintain their place in it. Workers must be prepared for one or more career shifts before retirement. They must acquire more skills, and refresh their skills more often.
We can help American companies adapt, and regain their competitive edge in the global marketplace. We can help more trade-displaced workers get back into the workforce. We should help these workers adapt not only to trade displacement, but to all the other aspects of globalization as well.
American workers and the companies that employ them must each continually adjust to a changing world marketplace. So too should our worker adjustment strategies.
Mr. President, I ask unanimous consent that the full text of the bill be printed in the Record.