Tax Proposal Pluses Will Come Slow to IT Industry

Tax Proposal Pluses Will Come Slow to IT Industry

Alan Greenspan

By Kerry Gildea, Contributing Writer

President George W. Bush's new 10-year, $1.6 trillion tax plan and myriad tax cut and tax credit proposals arrived on Capitol Hill last month, bringing with it a long year of jockeying and compromise before the information technology industry sees any potential benefits.

In general, there is considerable support in the IT community for cuts that could further stimulate electronic commerce and facilitate economic expansion of e-business. Enthusiasm for the Bush package and expanded cuts to the capital gains tax is particularly strong among e-businesses and small high-tech companies.

"Congress needs to get behind the Bush tax relief plan and make it the top legislative priority," said Karen Kerrigan, chairman of the Small Business Survival Committee in a Jan. 18 statement. The Washington-based SBSC is a nonprofit, small business advocacy organization with more than 70,000 members nationwide.

"When one considers the amount of revenue the federal government sucks out of the private sector, this by no means is a huge tax cut," Kerrigan said. "However, it is an important one. Particularly now, and especially for small businesses."

SBSC chief economist Raymond Keating said the Bush plan would benefit all businesses, because an across-the-board cut in personal taxes would boost critical incentives for working, saving, investing and risk taking.

"We are encouraged that the business community is coalescing around Bush's across-the-board approach rather than targeted, parochial measures," Keating said. "Across-the-board relief in income tax rates and eliminating the death tax are solid, pro-growth measures."

Keating also endorsed a cut to the capital gains tax proposed by Senate Majority Leader Trent Lott, R-Miss. On Jan. 14, Lott called for a 25 percent reduction in capital gains tax, which would reduce the top rate from 20 percent to 15 percent, arguing that such a cut would help boost the economy.

"The most appropriate tax policy scenario for the economy would be to combine a vastly accelerated Bush tax cut in personal income tax with Lott's call for reduction in the capital gains tax," Keating said.

Resistance from House and Senate Democrats, however, is likely.

Senate Minority Leader Tom Daschle, D-S.D., told reporters Jan. 24 there has to be a clearer view of the entire budget framework to determine whether the nation can afford the Bush tax package.

"We want to be able to see how we pay for it," Daschle said. "The one thing we don't want to do is to repeat the incredible problem we created for this country in 1981 when we passed a tax cut we couldn't afford. ... It caused incredible and unnecessary havoc in our economy and in our fiscal policy."

Another key issue in the tax arena for the IT industry is a renewed push to make permanent the research and development tax credit. This gives a tax credit to American businesses conducting any research and development that can bolster growth of the new economy and contribute to future expansion in the high-tech sector.

Sens. Orrin Hatch, R-Utah, and Max Baucus, D-Mont., Jan. 22 introduced S.41 to make the R&D tax credit permanent and increase other research tax credit rates. Reps. Nancy Johnson, R-Conn., and Robert Matsui, D-Calif., introduced companion House legislation.

"Congress' five-year extension of the credit last year serves as a kind of down payment on a permanent extension, since expenditures have already been scored in the federal budget for this credit until 2004," AeA President and Chief Executive Officer William Archey said. "Congress will thus get its best 'bang for the buck' in permanently extending this important credit before it expires again."

The Washington-based AeA, formerly called the American Electronics Association, is the nation's largest high-tech trade group with more than 3,500 member companies.

The R&D tax credit is essential to the long-term vitality of the high-tech industry, Archey said. But until the credit becomes permanent, "its economic benefits will be limited by the simple fact that many companies need more certainty of time than five years to consider the tax credit a sufficient incentive, since most corporate research projects last five to 10 years from conception to completion," he said.

Sen. Jay Rockefeller, D-W.Va., also introduced a new bill, the Broadband Internet Access Act of 2001, similar to legislation he pushed in the last Congress creating special tax credits for investments in high-speed Internet access for rural and inner-city areas.

The bill provides a 10 percent tax credit over five years to companies that invest in broadband facilities in inner cities and rural areas. The bill also includes a 20 percent tax credit for companies that invest in next-generation broadband services.

"We must do everything we can to ensure the broadband communications are available to all areas of the country," Rockefeller said in a Jan. 22 floor speech introducing the bill (S. 88). The bill is co-sponsored by 32 senators. Companion legislation has not been introduced in the House.

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