High-tech tax credit cast aside

President Bush's $1.35 trillion tax cut is headed for a vote in the Senate perhaps as soon as Monday, but without a key tax break for technology companies.

Language to make the research and develop tax credit permanent was dropped from the tax cut when the bill was trimmed from $1.6 trillion to $1.35 trillion. High-tech industry associations are lobbying to have the measure restored, and Sen. Orrin Hatch (R-Utah) is planning to offer an amendment to do so when the tax bill reaches the Senate floor.

The tax credit lets companies write off a major portion of their technology research and development expenses. If made permanent, it could save companies nearly $47 billion during the next 10 years.

Making the tax credit permanent was one of the legislative goals of the Senate Republican High-Tech Task Force, which pledged this spring to work for "minimal regulations and minimal taxes" for high-technology companies.

The task force, led by Sen. George Allen (R-Va.) is urging the Senate to restore the provision to make the tax credit permanent, contending that the tax credit "is essential to helping maintain America's technology lead in the world."

Even if the provision is not reinserted into the tax cut bill, the companies can still take advantage of the tax credit. Originally enacted in 1981, the tax credit has been extended temporarily 10 times. The most recent extension keeps it alive into 2004. But members of the task force argue that a temporary tax credit is less valuable than a permanent one "because of its unpredictability."

The Information Technology Association of America also is lobbying to make the tax credit permanent. "The credit has proven a great value for companies on the cutting edge of information technology, their customers and investors, and the U.S. economy overall," ITAA president Harris Miller said.

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