Extension of research tax credit and education assistance exclusion.

• Position: Tax Executives Institute IRS Federal Tax Committee

On July 3, 1996, Tax Executives Institute submitted the following comments to the Honorable William V. Roth, Chairman of the Senate Committee on Finance, concerning proposals to extend the research tax credit and the exclusion for employer-provided educational assistance. The comments were prepared under the aegis of TEl's Federal Tax Committee, whose chair is David L. Klausman of Westinghouse Corp. Raymond G. Rossi of Intel Corporation also contributed materially to the preparation of the Institute's submission.

As President of Tax Executives Institute (TEI), I am writing to commend the Senate Finance Committee and you for including extensions of both the research tax credit and employer provided educational assistance income exclusion in the Small Business Protection Act of 1996 (H.R. 3448). TEI is the professional association of in-house tax professionals, with our 5,000 members representing the largest 2,700 companies in North America. Our members deal with the Internal Revenue Code on a daily basis, and they are committed to maintaining a tax system that works -- for the benefit of both taxpayers and the government alike.

Both the employer-provided educational assistance exclusion and the research credit represent important investments in America's future. Accordingly, both have enjoyed widespread support for many years. The longstanding support for these provisions is evidenced by their frequent and -- regrettably -- often retroactive extension. Indeed, since its enactment in 1978, the section 127 exclusion for educational assistance has been reinstated retroactively no fewer than six times. Similarly, the section 41 research credit provision has been extended numerous times (once retroactively).

TEI believes that the incentive effect that these provisions are intended to provide would be enhanced by restoring them on a permanent rather than a merely temporary basis. Indeed, the "sunsetting" of these provisions diminishes their vitality. Repeated short-term reenactments of the research credit cannot help but engender uncertainty and impede the credit's incentive effect of encouraging companies to engage in incremental research projects in the United States. Moreover, the current Finance Committee version of the Small Business Job Protection Act...