House Report 113-431 - AMERICAN RESEARCH AND COMPETITIVENESS ACT OF 2014

[House Report 113-431]
[From the U.S. Government Publishing Office]

113th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 113-431

======================================================================

AMERICAN RESEARCH AND COMPETITIVENESS ACT OF 2014

_______

May 2, 2014.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Camp, from the Committee on Ways and Means, submitted the following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 4438]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 4438) to amend the Internal Revenue Code of 1986 to
simplify and make permanent the research credit, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.

CONTENTS

Page
I. SUMMARY AND BACKGROUND...........................................3
A. Purpose and Summary................................. 3
B. Background and Need for Legislation................. 3
C. Legislative History................................. 4
II. EXPLANATION OF THE BILL..........................................4
A. Research Credit Simplified and Made Permanent (sec.
41 of the Code).................................... 4
III. VOTES OF THE COMMITTEE...........................................7
IV. BUDGET EFFECTS OF THE BILL.......................................8
A. Committee Estimate of Budgetary Effects............. 8
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 8
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 8
D. Macroeconomic Impact Analysis....................... 11
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......12
A. Committee Oversight Findings and Recommendations.... 12
B. Statement of General Performance Goals and
Objectives......................................... 12
C. Information Relating to Unfunded Mandates........... 12
D. Applicability of House Rule XXI 5(b)................ 12
E. Tax Complexity Analysis............................. 12
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 13
G. Duplication of Federal Programs..................... 13
H. Disclosure of Directed Rule Makings................. 13
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........13
VII. DISSENTING VIEWS................................................24

The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``American Research and Competitiveness
Act of 2014''.

SEC. 2. RESEARCH CREDIT SIMPLIFIED AND MADE PERMANENT.

(a) In General.--Subsection (a) of section 41 of the Internal Revenue
Code of 1986 is amended to read as follows:
``(a) In General.--For purposes of section 38, the research credit
determined under this section for the taxable year shall be an amount
equal to the sum of--
``(1) 20 percent of so much of the qualified research
expenses for the taxable year as exceeds 50 percent of the
average qualified research expenses for the 3 taxable years
preceding the taxable year for which the credit is being
determined,
``(2) 20 percent of so much of the basic research payments
for the taxable year as exceeds 50 percent of the average basic
research payments for the 3 taxable years preceding the taxable
year for which the credit is being determined, plus
``(3) 20 percent of the amounts paid or incurred by the
taxpayer in carrying on any trade or business of the taxpayer
during the taxable year (including as contributions) to an
energy research consortium for energy research.''.
(b) Repeal of Termination.--Section 41 of such Code is amended by
striking subsection (h).
(c) Conforming Amendments.--
(1) Subsection (c) of section 41 of such Code is amended to
read as follows:
``(c) Determination of Average Research Expenses for Prior Years.--
``(1) Special rule in case of no qualified research
expenditures in any of 3 preceding taxable years.--In any case
in which the taxpayer has no qualified research expenses in any
one of the 3 taxable years preceding the taxable year for which
the credit is being determined, the amount determined under
subsection (a)(1) for such taxable year shall be equal to 10
percent of the qualified research expenses for the taxable
year.
``(2) Consistent treatment of expenses.--
``(A) In general.--Notwithstanding whether the period
for filing a claim for credit or refund has expired for
any taxable year taken into account in determining the
average qualified research expenses, or average basic
research payments, taken into account under subsection
(a), the qualified research expenses and basic research
payments taken into account in determining such
averages shall be determined on a basis consistent with
the determination of qualified research expenses and
basic research payments, respectively, for the credit
year.
``(B) Prevention of distortions.--The Secretary may
prescribe regulations to prevent distortions in
calculating a taxpayer's qualified research expenses or
basic research payments caused by a change in
accounting methods used by such taxpayer between the
current year and a year taken into account in
determining the average qualified research expenses or
average basic research payments taken into account
under subsection (a).''.
(2) Section 41(e) of such Code is amended--
(A) by striking all that precedes paragraph (6) and
inserting the following:
``(e) Basic Research Payments.--For purposes of this section--
``(1) In general.--The term `basic research payment' means,
with respect to any taxable year, any amount paid in cash
during such taxable year by a corporation to any qualified
organization for basic research but only if--
``(A) such payment is pursuant to a written agreement
between such corporation and such qualified
organization, and
``(B) such basic research is to be performed by such
qualified organization.
``(2) Exception to requirement that research be performed by
the organization.--In the case of a qualified organization
described in subparagraph (C) or (D) of paragraph (3),
subparagraph (B) of paragraph (1) shall not apply.'',
(B) by redesignating paragraphs (6) and (7) as
paragraphs (3) and (4), respectively, and
(C) in paragraph (4) as so redesignated, by striking
subparagraphs (B) and (C) and by redesignating
subparagraphs (D) and (E) as subparagraphs (B) and (C),
respectively.
(3) Section 41(f)(3) of such Code is amended--
(A)(i) by striking ``, and the gross receipts'' in
subparagraph (A)(i) and all that follows through
``determined under clause (iii)'',
(ii) by striking clause (iii) of subparagraph (A) and
redesignating clauses (iv), (v), and (vi), thereof, as
clauses (iii), (iv), and (v), respectively,
(iii) by striking ``and (iv)'' each place it appears
in subparagraph (A)(iv) (as so redesignated) and
inserting ``and (iii)'',
(iv) by striking subclause (IV) of subparagraph
(A)(iv) (as so redesignated), by striking ``, and'' at
the end of subparagraph (A)(iv)(III) (as so
redesignated) and inserting a period, and by adding
``and'' at the end of subparagraph (A)(iv)(II) (as so
redesignated),
(v) by striking ``(A)(vi)'' in subparagraph (B) and
inserting ``(A)(v)'', and
(vi) by striking ``(A)(iv)(II)'' in subparagraph
(B)(i)(II) and inserting ``(A)(iii)(II)'',
(B) by striking ``, and the gross receipts of the
predecessor,'' in subparagraph (A)(iv)(II) (as so
redesignated),
(C) by striking ``, and the gross receipts of,'' in
subparagraph (B),
(D) by striking ``, or gross receipts of,'' in
subparagraph (B)(i)(I), and
(E) by striking subparagraph (C).
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2013.
(2) Subsection (b).--The amendment made by subsection (b)
shall apply to amounts paid or incurred after December 31,
2013.

I. SUMMARY AND BACKGROUND

A. PURPOSE AND SUMMARY

Similar to a provision contained in the discussion draft of
the ``Tax Reform Act of 2014'' released on February 26, 2014,
the bill, H.R. 4438, reported by the Committee on Ways and
Means, provides a permanent simplified method for calculating
the research credit with a rate of 20 percent, replacing the
traditional 20-percent research credit calculation method. H.R.
4438 also provides a permanent basic research credit and energy
research credit (both with credit rates of 20 percent), and
changes the base period for the basic research credit from a
fixed period to a three-year rolling average. A temporary
research credit expired for qualified expenditures made after
December 31, 2013.

B. BACKGROUND AND NEED FOR LEGISLATION

While the Committee continues actively to pursue
comprehensive tax reform as a critical means of promoting
economic growth and job creation, the Committee also believes
that it is important to provide American employers permanent,
immediate tax relief to help encourage economic growth and job
creation. By providing a permanent simplified research credit,
instead of the temporary measures enacted over the past three
decades, H.R. 4438 provides much-needed certainty for
innovators, enhancing the effectiveness of the credit as an
incentive for investments in research and development. Making
the alternative simplified method the primary method for
calculating the credit also eases administrative burdens for
taxpayers and the IRS, eliminating substantial amounts of
recordkeeping, documentation issues, and controversy connected
with the historical base-period credit. By increasing the
alternative simplified credit from 14 percent to 20 percent,
H.R. 4438 further incentivizes critical research here in the
United States.

C. LEGISLATIVE HISTORY

Background

H.R. 4438 was introduced on April 9, 2014, and was referred
to the Committee on Ways and Means.

Committee action

The Committee on Ways and Means marked up H.R. 4438, the
American Research and Competitiveness Act of 2014, on April 29,
2014, and ordered the bill, as amended, favorably reported
(with a quorum being present).

Committee hearings

The need for a permanent simplified research credit was
discussed at no fewer than eight hearings during the 112th and
113th Congresses:
Full Committee hearing on Fundamental Tax Reform
(January 20, 2011);
Select Revenue Measures Subcommittee Hearing on
Small Businesses and Tax Reform (March 3, 2011);
Full Committee hearing on the Need for
Comprehensive Tax Reform to Help American Companies Compete in
the Global Market and Create Jobs for American Workers (May 12,
2011);
Full Committee hearing on How Other Countries Have
Used Tax Reform to Help Their Companies Compete in the Global
Market and Create Jobs (May 24, 2011);
Full Committee hearing on How Business Tax Reform
Can Encourage Job Creation (June 2, 2011);
Full Committee hearing on the Interaction of Tax
and Financial Accounting on Tax Reform (February 8, 2012);
Full Committee hearing on Tax Reform and the U.S.
Manufacturing Sector (July 19, 2012); and
Full Committee hearing on the Benefits of
Permanent Tax Policy for America's Job Creators (April 8,
2014).

II. EXPLANATION OF THE BILL

A. Research Credit Simplified and Made Permanent (sec. 41 of the Code)

PRESENT LAW

General rule

For general research expenditures, a taxpayer may claim a
research credit equal to 20 percent of the amount by which the
taxpayer's qualified research expenses for a taxable year
exceed its base amount for that year.\1\ Thus, the research
credit is generally available with respect to incremental
increases in qualified research. An alternative simplified
research credit (with a 14 percent rate and a different base
amount) may be claimed in lieu of this credit.\2\
---------------------------------------------------------------------------
\1\Sec. 41(a)(1).
\2\Sec. 41(c)(5).
---------------------------------------------------------------------------
A 20-percent research tax credit also is available with
respect to the excess of (1) 100 percent of corporate cash
expenses (including grants or contributions) paid for basic
research conducted by universities (and certain nonprofit
scientific research organizations) over (2) the sum of (a) the
greater of two minimum basic research floors plus (b) an amount
reflecting any decrease in nonresearch giving to universities
by the corporation as compared to such giving during a fixed-
base period, as adjusted for inflation.\3\ This separate credit
computation commonly is referred to as the basic research
credit.
---------------------------------------------------------------------------
\3\Secs. 41(a)(2) and 41(e). The base period for the basic research
credit generally extends from 1981 through 1983.
---------------------------------------------------------------------------
Finally, a research credit is available for a taxpayer's
expenditures on research undertaken by an energy research
consortium.\4\ This separate credit computation commonly is
referred to as the energy research credit. Unlike the other
research credits, the energy research credit applies to all
qualified expenditures, not just those in excess of a base
amount.
---------------------------------------------------------------------------
\4\Sec. 41(a)(3).
---------------------------------------------------------------------------
The research credit, including the basic research credit
and the energy research credit, expires for amounts paid or
incurred after December 31, 2013.\5\
---------------------------------------------------------------------------
\5\Sec. 41(h).
---------------------------------------------------------------------------

Computation of general research credit

The general research tax credit applies only to the extent
that the taxpayer's qualified research expenses for the current
taxable year exceed its base amount. The base amount for the
current year generally is computed by multiplying the
taxpayer's fixed-base percentage by the average amount of the
taxpayer's gross receipts for the four preceding years. If a
taxpayer both incurred qualified research expenses and had
gross receipts during each of at least three years from 1984
through 1988, then its fixed-base percentage is the ratio that
its total qualified research expenses for the 1984-1988 period
bears to its total gross receipts for that period (subject to a
maximum fixed-base percentage of 16 percent). Special rules
apply to all other taxpayers (so called start-up firms).\6\ In
computing the research credit, a taxpayer's base amount cannot
be less than 50 percent of its current-year qualified research
expenses.
---------------------------------------------------------------------------
\6\The Small Business Job Protection Act of 1996 expanded the
definition of start-up firms under section 41(c)(3)(B)(i) to include
any firm if the first taxable year in which such firm had both gross
receipts and qualified research expenses began after 1983. A special
rule (enacted in 1993) is designed to gradually recompute a start-up
firm's fixed-base percentage based on its actual research experience.
Under this special rule, a start-up firm is assigned a fixed-base
percentage of three percent for each of its first five taxable years
after 1993 in which it incurs qualified research expenses. A start-up
firm's fixed-base percentage for its sixth through tenth taxable years
after 1993 in which it incurs qualified research expenses is a phased-
in ratio based on the firm's actual research experience. For all
subsequent taxable years, the taxpayer's fixed-base percentage is its
actual ratio of qualified research expenses to gross receipts for any
five years selected by the taxpayer from its fifth through tenth
taxable years after 1993. Sec. 41(c)(3)(B).
---------------------------------------------------------------------------

Alternative simplified credit

The alternative simplified research credit is equal to 14
percent of qualified research expenses that exceed 50 percent
of the average qualified research expenses for the three
preceding taxable years.\7\ The rate is reduced to six percent
if a taxpayer has no qualified research expenses in any one of
the three preceding taxable years.\8\ An election to use the
alternative simplified credit applies to all succeeding taxable
years unless revoked with the consent of the Secretary.\9\
---------------------------------------------------------------------------
\7\Sec. 41(c)(5)(A).
\8\Sec. 41(c)(5)(B).
\9\Sec. 41(c)(5)(C).
---------------------------------------------------------------------------

Eligible expenses

Qualified research expenses eligible for the research tax
credit consist of: (1) in-house expenses of the taxpayer for
wages and supplies attributable to qualified research; (2)
certain time-sharing costs for computer use in qualified
research; and (3) 65 percent of amounts paid or incurred by the
taxpayer to certain other persons for qualified research
conducted on the taxpayer's behalf (so-called contract research
expenses).\10\ Notwithstanding the limitation for contract
research expenses, qualified research expenses include 100
percent of amounts paid or incurred by the taxpayer to an
eligible small business, university, or Federal laboratory for
qualified energy research.
---------------------------------------------------------------------------
\10\Under a special rule, 75 percent of amounts paid to a research
consortium for qualified research are treated as qualified research
expenses eligible for the research credit (rather than 65 percent under
the general rule under section 41(b)(3) governing contract research
expenses) if (1) such research consortium is a tax-exempt organization
that is described in section 501(c)(3) (other than a private
foundation) or section 501(c)(6) and is organized and operated
primarily to conduct scientific research, and (2) such qualified
research is conducted by the consortium on behalf of the taxpayer and
one or more persons not related to the taxpayer. Sec. 41(b)(3)(C).
---------------------------------------------------------------------------
To be eligible for the credit, the research not only has to
satisfy the requirements of section 174, but also must be
undertaken for the purpose of discovering information that is
technological in nature, the application of which is intended
to be useful in the development of a new or improved business
component of the taxpayer, and substantially all of the
activities of which constitute elements of a process of
experimentation for functional aspects, performance,
reliability, or quality of a business component. Research does
not qualify for the credit if substantially all of the
activities relate to style, taste, cosmetic, or seasonal design
factors.\11\ In addition, research does not qualify for the
credit if: (1) conducted after the beginning of commercial
production of the business component; (2) related to the
adaptation of an existing business component to a particular
customer's requirements; (3) related to the duplication of an
existing business component from a physical examination of the
component itself or certain other information; (4) related to
certain efficiency surveys, management function or technique,
market research, market testing, or market development, routine
data collection or routine quality control; (5) related to
software developed primarily for internal use by the taxpayer;
(6) conducted outside the United States, Puerto Rico, or any
U.S. possession; (7) in the social sciences, arts, or
humanities; or (8) funded by any grant, contract, or otherwise
by another person (or government entity).\12\
---------------------------------------------------------------------------
\11\Sec. 41(d)(3).
\12\Sec. 41(d)(4).
---------------------------------------------------------------------------

Relation to deduction

Deductions allowed to a taxpayer under section 174 (or any
other section) are reduced by an amount equal to 100 percent of
the taxpayer's research tax credit determined for the taxable
year.\13\ Taxpayers may alternatively elect to claim a reduced
research tax credit amount under section 41 in lieu of reducing
deductions otherwise allowed.\14\
---------------------------------------------------------------------------
\13\Sec. 280C(c).
\14\Sec. 280C(c)(3).
---------------------------------------------------------------------------

REASONS FOR CHANGE

The Committee acknowledges that research is vital to
creating jobs and economic growth. Research is the basis of new
products, new services, new industries, and new jobs for the
domestic economy. The Committee believes that the temporary
nature of the now-expired research credit limits its
effectiveness, preventing businesses from making long-term
investments in U.S.-based research and related business
operations. Additionally, many taxpayers report that the
general research credit can be complicated to calculate and
that the base period is difficult to determine. The Committee
believes that the alternative simplified credit is a more
straightforward approach for calculating the research credit
and that replacing the general credit with the simplified
method would make the research credit more efficient and better
achieve its intended purpose of fostering domestic research and
development. Therefore, the Committee believes it is
appropriate to simplify and make permanent the present-law
research credit.

EXPLANATION OF PROVISION

The provision makes permanent the alternative simplified
method for calculating the research credit and increases the
rate to 20 percent. That is, the research credit is equal to 20
percent of qualified research expenses that exceed 50 percent
of the average qualified research expenses for the three
preceding taxable years. The rate is reduced to 10 percent if a
taxpayer has no qualified research expenses in any one of the
three preceding taxable years. The provision repeals the
traditional 20-percent research credit calculation method.
The provision also makes permanent the basic research
credit and the energy research credit (both with credit rates
of 20-percent), and changes the base period for the basic
research credit from a fixed period to a three-year rolling
average.

EFFECTIVE DATE

The provision to make various components of the research
credit permanent is effective for amounts paid or incurred
after December 31, 2013. The other elements of the provision
are effective for taxable years beginning after December 31,
2013.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 4438, the American Research and
Competitiveness Act of 2014, on April 29, 2014.
The bill, H.R. 4438, was ordered favorably reported as
amended by a roll call vote of 22 yeas to 12 nays (with a
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp....................... ........ ......... Mr. Levin........ ........ .........
Mr. Johnson.................... ........ ......... Mr. Rangel....... ........ .........
Mr. Brady...................... ........ ......... Mr. McDermott.... ........ .........
Mr. Ryan....................... ........ ......... Mr. Lewis........ ........ .........
Mr. Nunes...................... ........ ......... Mr. Neal......... ........ ........ .........
Mr. Tiberi..................... ........ ......... Mr. Becerra...... ........ .........
Mr. Reichert................... ........ ......... Mr. Doggett...... ........ .........
Mr. Boustany................... ........ ......... Mr. Thompson..... ........ .........
Mr. Roskam..................... ........ ......... Mr. Larson....... ........ .........
Mr. Gerlach.................... ........ ........ ......... Mr. Blumenauer... ........ .........
Mr. Price...................... ........ ......... Mr. Kind......... ........ .........
Mr. Buchanan................... ........ ......... Mr. Pascrell..... ........ .........
Mr. Smith...................... ........ ......... Mr. Crowley...... ........ .........
Mr. Schock..................... ........ ......... Ms. Schwartz..... ........ ........ .........
Ms. Jenkins.................... ........ ......... Mr. Davis........ ........ .........
Mr. Paulsen.................... ........ ......... Ms. Sanchez...... ........ .........
Mr. Marchant................... ........ .........
Ms. Black...................... ........ .........
Mr. Reed....................... ........ .........
Mr. Young...................... ........ .........
Mr. Kelly...................... ........ .........
Mr. Griffin.................... ........ ........ .........
Mr. Renacci.................... ........ .........
----------------------------------------------------------------------------------------------------------------

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 4438, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal budget receipts for fiscal years 2014-2024:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal years in billions of dollars--
---------------------------------------------------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014-19 2014-24
--------------------------------------------------------------------------------------------------------------------------------------------------------
-4.9 -8.6 -10.2 -11.7 -13.1 -14.4 -15.8 -17.0 -18.5 -19.9 -21.3 -62.9 -155.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures. (See amounts in
table in Part IV.A., above.)

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.

U.S. Congress,
Congressional Budget Office,
Washington, DC, May 1, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4438, the American
Research and Competitiveness Act of 2014.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Logan
Timmerhoff.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure.

H.R. 4438--American Research and Competitiveness Act of 2014

H.R. 4438 would amend the Internal Revenue Code to modify
the calculation method and the rate for the tax credit for
qualified research expenses that expired at the end of 2013.
The modified credit would be made permanent. The bill would not
extend the traditional calculation method and its associated 20
percent credit. It would, however, make permanent the
``alternative simplified method'' for calculating the tax
credit for qualified research expenses and generally increase
the associated credit to 20 percent of those expenses that
exceed 50 percent of the average qualified research expenses
for the three preceding taxable years. It also makes permanent
a tax credit for basic research and energy research and changes
the base period for the basic research credit from a fixed
period to a three-year rolling average.
The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 4438 would reduce revenues, thus
increasing federal deficits, by about $156 billion over the
2014-2024 period.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
direct spending and revenues. Enacting H.R. 4438 would result
in revenue losses in each year beginning in 2014. The estimated
increases in the deficit are shown in the following table.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Logan
Timmerhoff. The estimate was approved by David Weiner,
Assistant Director for Tax Analysis.

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4438, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON APRIL 29, 2014
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014-2019 2014-2024
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects.................. 4,964 8,648 10,188 11,673 13,083 14,439 15,764 17,100 18,471 19,879 21,296 62,994 155,504
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.

D. Macroeconomic Impact Analysis

In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: the effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.
The bill simplifies and makes permanent a 20 percent tax
credit for qualified research expenses that exceed 50 percent
of the average qualified research expenses for the three
preceding years, thus lowering the cost of research and
development for businesses. Economic theory suggests that
increased research expenditures would promote an increase in
economic output by promoting technological development, and
hence increasing the productivity of labor and capital. Theory
is less clear on the extent to which increasing research
intensity is subject to diminishing returns.\15\
---------------------------------------------------------------------------
\15\Charles Jones discusses the role of research in growth theory
in ``R&D-Based Models of Economic Growth,'' The Journal of Political
Economy, 103(4), August 1995, pp. 759-794, and speculates on future
trends in productivity growth in the context of this theory in Fernald,
John G. and Charles I. Jones, ``The Future of U.S. Economic Growth,''
AEA Papers and Proceedings, forthcoming.
---------------------------------------------------------------------------
To the extent that research activities are responsive to
changes in their cost, the tax credit should increase such
expenditures. Economic research that has attempted to measure
how responsive firms' research expenditures are to tax and
other incentives has yielded a wide range of estimates.\16\ JCT
staff estimates this bill could increase research expenditures
by up to 10 percent.
---------------------------------------------------------------------------
\16\A description of several of these studies, along with
additional economic analysis of tax subsidies for research
expenditures, may be found in Joint Committee on Taxation, Description
of Revenue Provisions Contained in the President's Fiscal Year 2013
Budget Proposal, (JCS-2-12), June 2012, pp. 100-116.
---------------------------------------------------------------------------
Studies that have attempted to quantify the effect of
research expenditures on factor productivity are also subject
to a significant amount of uncertainty. It is difficult to find
objective measures of productivity, and of the stock of
knowledge created by research expenditures, that can be used in
econometric analyses. It is also difficult to establish links
between research expenditures within certain firms, or within
industries, or even within specific countries, because other
firms or industries may also benefit from technological
development produced by those expenditures. And it is difficult
to separate out the effects of research expenditures from other
possible influences on productivity.\17\ Notwithstanding the
methodological challenges in estimating the magnitude of this
effect, these studies generally find positive returns to
research expenditures, providing support for the hypothesized
link between research spending and increased productivity and
growth.
---------------------------------------------------------------------------
\17\Bronwyn H. Hall, Jackques Mairesse, and Pierre Mohnen discuss
these issues in a survey of studies that have attempted to measure the
effects of research expenditures on factor productivity and the rate of
return on investment in Measuring the Returns to R&D, National Bureau
of Economic Research Working Paper 15622, December 2009.
---------------------------------------------------------------------------
Finally, in the short-run, the net reduction in tax
receipts resulting from the bill could provide for a small
increase in overall demand, thus resulting in some economic
growth. In the longer term, the resulting increase in deficits
would result in higher interest rates, reducing the positive
investment incentive effects.
Overall, we estimate that the effects of the bill on
economic activity are so small and uncertain relative to the
size of the economy as to be incalculable within the context of
a model of the aggregate economy.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 4438 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.

C. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.

D. Applicability of House Rule XXI 5(b)

Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.

E. Tax Complexity Analysis

Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'')
requires the staff of the Joint Committee on Taxation (in
consultation with the Internal Revenue Service and the Treasury
Department) to provide a tax complexity analysis. The
complexity analysis is required for all legislation reported by
the Senate Committee on Finance, the House Committee on Ways
and Means, or any committee of conference if the legislation
includes a provision that directly or indirectly amends the
Internal Revenue Code and has widespread applicability to
individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Code and that
have ``widespread applicability'' to individuals or small
businesses, within the meaning of the rule.

F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits

With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.

G. Duplication of Federal Programs

In compliance with Sec. 3(j)(2) of H. Res. 5 (113th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169). The Committee also states that the Government
Accountability Office has included the research tax credit in a
report to Congress pursuant to section 21 of Public Law 111-
139.

H. Disclosure of Directed Rule Makings

In compliance with Sec. 3(k) of H. Res. 5 (113th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

* * * * * * *

Subtitle A--Income Taxes

* * * * * * *

CHAPTER 1--NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter A--Determination of Tax Liability

* * * * * * *

PART IV--CREDITS AGAINST TAX

* * * * * * *

Subpart D--Business Related Credits

* * * * * * *

SEC. 41. CREDIT FOR INCREASING RESEARCH ACTIVITIES.

[(a) General Rule.--For purposes of section 38, the research
credit determined under this section for the taxable year shall
be an amount equal to the sum of--
[(1) 20 percent of the excess (if any) of--
[(A) the qualified research expenses for the
taxable year, over
[(B) the base amount,
[(2) 20 percent of the basic research payments
determined under subsection (e)(1)(A), and
[(3) 20 percent of the amounts paid or incurred by
the taxpayer in carrying on any trade or business of
the taxpayer during the taxable year (including as
contributions) to an energy research consortium for
energy research.]
(a) In General.--For purposes of section 38, the research
credit determined under this section for the taxable year shall
be an amount equal to the sum of--
(1) 20 percent of so much of the qualified research
expenses for the taxable year as exceeds 50 percent of
the average qualified research expenses for the 3
taxable years preceding the taxable year for which the
credit is being determined,
(2) 20 percent of so much of the basic research
payments for the taxable year as exceeds 50 percent of
the average basic research payments for the 3 taxable
years preceding the taxable year for which the credit
is being determined, plus
(3) 20 percent of the amounts paid or incurred by the
taxpayer in carrying on any trade or business of the
taxpayer during the taxable year (including as
contributions) to an energy research consortium for
energy research.

* * * * * * *

[(c) Base Amount.--
[(1) In general.--The term ``base amount'' means the
product of--
[(A) the fixed-base percentage, and
[(B) the average annual gross receipts of the
taxpayer for the 4 taxable years preceding the
taxable year for which the credit is being
determined (hereinafter in this subsection
referred to as the ``credit year'').
[(2) Minimum base amount.--In no event shall the base
amount be less than 50 percent of the qualified
research expenses for the credit year.
[(3) Fixed-base percentage.--
[(A) In general.--Except as otherwise
provided in this paragraph, the fixed-base
percentage is the percentage which the
aggregate qualified research expenses of the
taxpayer for taxable years beginning after
December 31, 1983, and before January 1, 1989,
is of the aggregate gross receipts of the
taxpayer for such taxable years.
[(B) Start-up companies.--
[(i) Taxpayers to which subparagraph
applies.--The fixed-base percentage
shall be determined under this
subparagraph if--
[(I) the first taxable year
in which a taxpayer had both
gross receipts and qualified
research expenses begins after
December 31, 1983, or
[(II) there are fewer than 3
taxable years beginning after
December 31, 1983, and before
January 1, 1989, in which the
taxpayer had both gross
receipts and qualified research
expenses.
[(ii) Fixed-base percentage.--In a
case to which this subparagraph
applies, the fixed-base percentage is--
[(I) 3 percent for each of
the taxpayer's 1st 5 taxable
years beginning after December
31, 1993, for which the
taxpayer has qualified research
expenses,
[(II) in the case of the
taxpayer's 6th such taxable
year, 1/6 of the percentage
which the aggregate qualified
research expenses of the
taxpayer for the 4th and 5th
such taxable years is of the
aggregate gross receipts of the
taxpayer for such years,
[(III) in the case of the
taxpayer's 7th such taxable
year, 1/3 of the percentage
which the aggregate qualified
research expenses of the
taxpayer for the 5th and 6th
such taxable years is of the
aggregate gross receipts of the
taxpayer for such years,
[(IV) in the case of the
taxpayer's 8th such taxable
year, 1/2 of the percentage
which the aggregate qualified
research expenses of the
taxpayer for the 5th, 6th, and
7th such taxable years is of
the aggregate gross receipts of
the taxpayer for such years,
[(V) in the case of the
taxpayer's 9th such taxable
year, 2/3 of the percentage
which the aggregate qualified
research expenses of the
taxpayer for the 5th, 6th, 7th,
and 8th such taxable years is
of the aggregate gross receipts
of the taxpayer for such years,
[(VI) in the case of the
taxpayer's 10th such taxable
year, 5/6 of the percentage
which the aggregate qualified
research expenses of the
taxpayer for the 5th, 6th, 7th,
8th, and 9th such taxable years
is of the aggregate gross
receipts of the taxpayer for
such years, and
[(VII) for taxable years
thereafter, the percentage
which the aggregate qualified
research expenses for any 5
taxable years selected by the
taxpayer from among the 5th
through the 10th such taxable
years is of the aggregate gross
receipts of the taxpayer for
such selected years.
[(iii) Treatment of de minimis
amounts of gross receipts and qualified
research expensesThe Secretary may
prescribe regulations providing that de
minimis amounts of gross receipts and
qualified research expenses shall be
disregarded under clauses (i) and (ii).
[(C) Maximum fixed-base percentage.--In no
event shall the fixed-base percentage exceed 16
percent.
[(D) Rounding.--The percentages determined
under subparagraphs (A) and (B)(ii) shall be
rounded to the nearest 1/100th of 1 percent.
[(4) Election of alternative incremental credit.--
[(A) In general.--At the election of the
taxpayer, the credit determined under
subsection (a)(1) shall be equal to the sum
of--
[(i) 3 percent of so much of the
qualified research expenses for the
taxable year as exceeds 1 percent of
the average described in subsection
(c)(1)(B) but does not exceed 1.5
percent of such average,
[(ii) 4 percent of so much of such
expenses as exceeds 1.5 percent of such
average but does not exceed 2 percent
of such average, and
[(iii) 5 percent of so much of such
expenses as exceeds 2 percent of such
average.
[(B) Election.--An election under this
paragraph shall apply to the taxable year for
which made and all succeeding taxable years
unless revoked with the consent of the
Secretary.
[(5) Election of alternative simplified credit.--
[(A) In general.--At the election of the
taxpayer, the credit determined under
subsection (a)(1) shall be equal to 14 percent
(12 percent in the case of taxable years ending
before January 1, 2009) of so much of the
qualified research expenses for the taxable
year as exceeds 50 percent of the average
qualified research expenses for the 3 taxable
years preceding the taxable year for which the
credit is being determined.
[(B) Special rule in case of no qualified
research expenses in any of 3 preceding taxable
years.--
[(i) Taxpayers to which subparagraph
applies.--The credit under this
paragraph shall be determined under
this subparagraph if the taxpayer has
no qualified research expenses in any
one of the 3 taxable years preceding
the taxable year for which the credit
is being determined.
[(ii) Credit rate.--The credit
determined under this subparagraph
shall be equal to 6 percent of the
qualified research expenses for the
taxable year.
[(C) Election.--An election under this
paragraph shall apply to the taxable year for
which made and all succeeding taxable years
unless revoked with the consent of the
Secretary. An election under this paragraph may
not be made for any taxable year to which an
election under paragraph (4) applies.
[(6) Consistent treatment of expenses required.--
[(A) In general.--Notwithstanding whether the
period for filing a claim for credit or refund
has expired for any taxable year taken into
account in determining the fixed-base
percentage, the qualified research expenses
taken into account in computing such percentage
shall be determined on a basis consistent with
the determination of qualified research
expenses for the credit year.
[(B) Prevention of distortions.--The
Secretary may prescribe regulations to prevent
distortions in calculating a taxpayer's
qualified research expenses or gross receipts
caused by a change in accounting methods used
by such taxpayer between the current year and a
year taken into account in computing such
taxpayer's fixed-base percentage.
[(7) Gross receipts.--For purposes of this
subsection, gross receipts for any taxable year shall
be reduced by returns and allowances made during the
taxable year. In the case of a foreign corporation,
there shall be taken into account only gross receipts
which are effectively connected with the conduct of a
trade or business within the United States, the
Commonwealth of Puerto Rico, or any possession of the
United States.]
(c) Determination of Average Research Expenses for Prior
Years.--
(1) Special rule in case of no qualified research
expenditures in any of 3 preceding taxable years.--In
any case in which the taxpayer has no qualified
research expenses in any one of the 3 taxable years
preceding the taxable year for which the credit is
being determined, the amount determined under
subsection (a)(1) for such taxable year shall be equal
to 10 percent of the qualified research expenses for
the taxable year.
(2) Consistent treatment of expenses.--
(A) In general.--Notwithstanding whether the
period for filing a claim for credit or refund
has expired for any taxable year taken into
account in determining the average qualified
research expenses, or average basic research
payments, taken into account under subsection
(a), the qualified research expenses and basic
research payments taken into account in
determining such averages shall be determined
on a basis consistent with the determination of
qualified research expenses and basic research
payments, respectively, for the credit year.
(B) Prevention of distortions.--The Secretary
may prescribe regulations to prevent
distortions in calculating a taxpayer's
qualified research expenses or basic research
payments caused by a change in accounting
methods used by such taxpayer between the
current year and a year taken into account in
determining the average qualified research
expenses or average basic research payments
taken into account under subsection (a).

* * * * * * *

[(e) Credit Allowable With Respect to Certain Payments to
Qualified Organizations for Basic Research.--For purposes of
this section--
[(1) In general.--In the case of any taxpayer who
makes basic research payments for any taxable year--
[(A) the amount of basic research payments
taken into account under subsection (a)(2)
shall be equal to the excess of--
[(i) such basic research payments,
over
[(ii) the qualified organization base
period amount, and
[(B) that portion of such basic research
payments which does not exceed the qualified
organization base period amount shall be
treated as contract research expenses for
purposes of subsection (a)(1).
[(2) Basic research payments defined.--For purposes
of this subsection--
[(A) In general.--The term ``basic research
payment'' means, with respect to any taxable
year, any amount paid in cash during such
taxable year by a corporation to any qualified
organization for basic research but only if--
[(i) such payment is pursuant to a
written agreement between such
corporation and such qualified
organization, and
[(ii) such basic research is to be
performed by such qualified
organization.
[(B) Exception to requirement that research
be performed by the organization.--In the case
of a qualified organization described in
subparagraph (C) or (D) of paragraph (6),
clause (ii) of subparagraph (A) shall not
apply.
[(3) Qualified organization base period amount.--For
purposes of this subsection, the term ``qualified
organization base period amount'' means an amount equal
to the sum of--
[(A) the minimum basic research amount, plus
[(B) the maintenance-of-effort amount.
[(4) Minimum basic research amount.--For purposes of
this subsection--
[(A) In general.--The term ``minimum basic
research amount'' means an amount equal to the
greater of--
[(i) 1 percent of the average of the
sum of amounts paid or incurred during
the base period for--
[(I) any in-house research
expenses, and
[(II) any contract research
expenses, or
[(ii) the amounts treated as contract
research expenses during the base
period by reason of this subsection (as
in effect during the base period).
[(B) Floor amount.--Except in the case of a
taxpayer which was in existence during a
taxable year (other than a short taxable year)
in the base period, the minimum basic research
amount for any base period shall not be less
than 50 percent of the basic research payments
for the taxable year for which a determination
is being made under this subsection.
[(5) Maintenance-of-effort amount.--For purposes of
this subsection--
[(A) In general.--The term ``maintenance-of-
effort amount'' means, with respect to any
taxable year, an amount equal to the excess (if
any) of--
[(i) an amount equal to--
[(I) the average of the
nondesignated university
contributions paid by the
taxpayer during the base
period, multiplied by
[(II) the cost-of-living
adjustment for the calendar
year in which such taxable year
begins, over (ii) the amount of
nondesignated university
contributions paid by the
taxpayer during such taxable
year.
[(B) Nondesignated university
contributions.--For purposes of this paragraph,
the term ``nondesignated university
contribution'' means any amount paid by a
taxpayer to any qualified organization
described in paragraph (6)(A)--
[(i) for which a deduction was
allowable under section 170, and
[(ii) which was not taken into
account--
[(I) in computing the amount
of the credit under this
section (as in effect during
the base period) during any
taxable year in the base
period, or
[(II) as a basic research
payment for purposes of this
section.
[(C) Cost-of-living adjustment defined.--
[(i) In general.--The cost-of-living
adjustment for any calendar year is the
cost-of-living adjustment for such
calendar year determined under section
1(f)(3), by substituting ``calendar
year 1987'' for ``calendar year 1992''
in subparagraph (B) thereof.
[(ii) Special rule where base period
ends in a calendar year other than 1983
or 1984.--If the base period of any
taxpayer does not end in 1983 or 1984,
section 1(f)(3)(B) shall, or purposes
of this paragraph, be applied by
substituting the calendar year in which
such base period ends for 1992. Such
substitution shall be in lieu of the
substitution under clause (i).]
(e) Basic Research Payments.-- For purposes of this section--
(1) In general.--The term ``basic research payment''
means, with respect to any taxable year, any amount
paid in cash during such taxable year by a corporation
to any qualified organization for basic research but
only if--
(A) such payment is pursuant to a written
agreement between such corporation and such
qualified organization, and
(B) such basic research is to be performed by
such qualified organization.
(2) Exception to requirement that research be
performed by the organization.--In the case of a
qualified organization described in subparagraph (C) or
(D) of paragraph (3), subparagraph (B) of paragraph (1)
shall not apply.
[(6)] (3) Qualified organization.--For purposes of
this subsection, the term ``qualified organization''
means any of the following organizations:
(A) * * *

* * * * * * *

[(7)] (4) Definitions and special rules.--For
purposes of this subsection--
(A) * * *

* * * * * * *

[(B) Base period.--The term ``base period''
means the 3-taxable-year period ending with the
taxable year immediately preceding the 1st
taxable year of the taxpayer beginning after
December 31, 1983.
[(C) Exclusion from incremental credit
calculation.--For purposes of determining the
amount of credit allowable under subsection
(a)(1) for any taxable year, the amount of the
basic research payments taken into account
under subsection (a)(2)--
[(i) shall not be treated as
qualified research expenses under
subsection (a)(1)(A), and
[(ii) shall not be included in the
computation of base amount under
subsection (a)(1)(B).]
[(D)] (B) Trade or business qualification.--
For purposes of applying subsection (b)(1) to
this subsection, any basic research payments
shall be treated as an amount paid in carrying
on a trade or business of the taxpayer in the
taxable year in which it is paid (without
regard to the provisions of subsection
(b)(3)(B)).
[(E)] (C) Certain corporations not
eligible.--The term ``corporation'' shall not
include--
(i) * * *

* * * * * * *

(f) Special Rules.--For purposes of this section--
(1) * * *

* * * * * * *

(3) Adjustments for certain acquisitions, etc..--
Under regulations prescribed by the Secretary--
(A) Acquisitions.--
(i) In general.--If a person acquires
the major portion of either a trade or
business or a separate unit of a trade
or business (hereinafter in this
paragraph referred to as the ``acquired
business'') of another person
(hereinafter in this paragraph referred
to as the ``predecessor''), then the
amount of qualified research expenses
paid or incurred by the acquiring
person during the measurement period
shall be increased by the amount
determined under clause (ii)[, and the
gross receipts of the acquiring person
for such period shall be increased by
the amount determined under clause
(iii)].

* * * * * * *

[(iii) Amount determined with respect
to gross receipts.--The amount
determined under this clause is the
amount which would be determined under
clause (ii) if ``the gross receipts
of'' were substituted for ``the
qualified research expenses paid or
incurred by'' each place it appears in
clauses (ii) and (iv).]
[(iv)] (iii) Acquisition year
amount.--For purposes of clause (ii),
the acquisition year amount is the
amount equal to the product of--
(I) * * *
(II) the number of days in
the period beginning on the
date of the acquisition and
ending on the last day of the
taxable year in which the
acquisition is made,
divided by the number of days in the
acquiring person's taxable year.
[(v)] (iv) Special rules for
coordinating taxable years.--In the
case of an acquiring person and a
predecessor whose taxable years do not
begin on the same date--
(I) each reference to a
taxable year in clauses (ii)
[and (iv)] and (iii) shall
refer to the appropriate
taxable year of the acquiring
person,
(II) the qualified research
expenses paid or incurred by
the predecessor[, and the gross
receipts of the predecessor,]
during each taxable year of the
predecessor any portion of
which is part of the
measurement period shall be
allocated equally among the
days of such taxable year, and
(III) the amount of such
qualified research expenses
taken into account under
clauses (ii) [and (iv)] and
(iii) with respect to a taxable
year of the acquiring person
shall be equal to the total of
the expenses attributable under
subclause (II) to the days
occurring during such taxable
year[, and].
[(IV) the amount of such
gross receipts taken into
account under clause (iii) with
respect to a taxable year of
the acquiring person shall be
equal to the total of the gross
receipts attributable under
subclause (II) to the days
occurring during such taxable
year.]
[(vi)] (v) Measurement period.--For
purposes of this subparagraph, the term
``measurement period'' means, with
respect to the taxable year of the
acquiring person for which the credit
is determined, any period of the
acquiring person preceding such taxable
year which is taken into account for
purposes of determining the credit for
such year.
(B) Dispositions.--If the predecessor
furnished to the acquiring person such
information as is necessary for the application
of subparagraph (A), then, for purposes of
applying this section for any taxable year
ending after such disposition, the amount of
qualified research expenses paid or incurred
by[, and the gross receipts of,] the
predecessor during the measurement period (as
defined in subparagraph [(A)(vi)] (A)(v),
determined by substituting ``predecessor'' for
``acquiring person'' each place it appears)
shall be reduced by--
(i) in the case of the taxable year
in which such disposition is made, an
amount equal to the product of--
(I) the qualified research
expenses paid or incurred by[,
or gross receipts of,] the
predecessor with respect to the
acquired business during the
measurement period (as so
defined and so determined), and
(II) the number of days in
the period beginning on the
date of acquisition (as
determined for purposes of
subparagraph [(A)(iv)(II)]
(A)(iii)(II)) and ending on the
last day of the taxable year of
the predecessor in which the
disposition is made,

* * * * * * *

[(C) Certain reimbursements taken into
account in determining fixed-base percentage.--
If during any of the 3 taxable years following
the taxable year in which a disposition to
which subparagraph (B) applies occurs, the
disposing taxpayer (or a person with whom the
taxpayer is required to aggregate expenditures
under paragraph (1)) reimburses the acquiring
person (or a person required to so aggregate
expenditures with such person) for research on
behalf of the taxpayer, then the amount of
qualified research expenses of the taxpayer for
the taxable years taken into account in
computing the fixed-base percentage shall be
increased by the lesser of--
[(i) the amount of the decrease under
subparagraph (B) which is allocable to
taxable years so taken into account, or
[(ii) the product of the number of
taxable years so taken into account,
multiplied by the amount of the
reimbursement described in this
subparagraph.]

* * * * * * *

[(h) Termination.--
[(1) In general.--This section shall not apply to any
amount paid or incurred--
[(A) after June 30, 1995, and before July 1,
1996, or
[(B) after December 31, 2013.
[(2) Termination of alternative incremental credit.--
No election under subsection (c)(4) shall apply to
taxable years beginning after December 31, 2008.
[(2) Computation for taxable year in which credit
terminates.--In the case of any taxable year with
respect to which this section applies to a number of
days which is less than the total number of days in
such taxable year--
[(A) the amount determined under subsection
(c)(1)(B) with respect to such taxable year
shall be the amount which bears the same ratio
to such amount (determined without regard to
this paragraph) as the number of days in such
taxable year to which this section applies
bears to the total number of days in such
taxable year, and
[(B) for purposes of subsection (c)(5), the
average qualified research expenses for the
preceding 3 taxable years shall be the amount
which bears the same ratio to such average
qualified research expenses (determined without
regard to this paragraph) as the number of days
in such taxable year to which this section
applies bears to the total number of days in
such taxable year.]

* * * * * * *

VII. DISSENTING VIEWS

These bills would add a combined $310 billion to the
deficit. Even though these bills were introduced individually
with some bipartisan support, the opposition to these bills was
based on the position that these tax provisions should not be
made permanent by adding to the deficit without any revenue
offset.
To put the combined cost ($310 billion) into context, this
total represents more than one-half of the entire federal
deficit this year--the lowest it has been since President Obama
took office. It represents nearly two-thirds of all non-defense
domestic discretionary spending in 2014. It is more than three
times what we spend annually on education, job training, and
social services. It is five times more than we spend on
veterans. And, it is five times more than we spend on medical
research and public health.
We also opposed the manner in which Republicans were
proceeding--selecting six to make permanent without any offset
from the approximately 60 tax provisions that expired last
year. This approach was both fiscally irresponsible and
fundamentally hypocritical.
We found it hypocritical that, four months ago, Republicans
let emergency unemployment insurance expire for more than 1.3
million Americans by arguing that an adequate offset had yet to
be proposed. In early April, the Senate came to a bipartisan
agreement on an offset after months of painstaking
negotiations. Yet House Republicans still refuse to act.
Further, we found it also hypocritical that the Republicans
were in favor of passing these six tax bills at a cost of $310
billion without an offset at the same time that they were
requiring an offset for a provision stripped from another bill
under consideration at the markup that helped foster children
at a cost of $12 million.
The consideration of these six tax bills should have been
part of the consideration of all the expired tax provisions
commonly referred to as ``tax extenders.'' The Republicans did
not take up other tax extenders that also are important to
Democratic Committee Members. Left to an uncertain fate are
provisions like the Work Opportunity Tax Credit, the New
Markets Tax Credit, and the renewable energy tax credits, as
well as the long-term status of the Earned Income Tax Credit,
the Child Tax Credit, and the American Opportunity Tax Credit.
Sincerely,
Sander M. Levin,
Ranking Member.