Copyright 2000 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
September 26, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2467 words
COMMITTEE:
HOUSE WAYS AND MEANS
HEADLINE:
TESTIMONY TAX CODE AND THE HIGH-TECH ECONOMY
TESTIMONY-BY: MICHAEL E. JALBERT , THE AMERICAN
ELECTRONICS ASSOCIATION (AEA)
BODY:
September 26,
2000 Statement of Michael E. Jalbert Chairman, President and CEO Transcrypt
International, Inc. on behalf of The American Electronics Association (AEA)
Testimony before the Subcommittee on Oversight of the House Committee on Ways
and Means Good afternoon Mr. Chairman and members of the Subcommittee. My name
is Michael E. Jalbert and I am the Chairman, President and CEO of Transcrypt
International, Inc., and my testimony today is on behalf of the American
Electronics Association (AEA). Transcrypt International, Inc. designs,
manufactures and markets trunked and conventional radio systems, stationary land
mobile radio transmitters and receivers, including mobile and portable radios,
and manufactures information security products that prevent the unauthorized
interception of sensitive voice and data communication. The more than 3,000
high-tech company members of the AEA and I thank you for the opportunity to
testify on the Tax Code and the New Economy. I wish to provide the Subcommittee
with an important overview of the New Economy, as much of it is included in the
membership of AEA. I have prepared this power point presentation to give a
visual demonstration of the impact the high tech industry is making on today's
economy and to help explain why our tax code needs to catch up to this industry.
The statistics presented are collected from the various AEA Cyber reports,
including AEA CyberStates 4.0, AEA CyberNation 2.0, and AEA CyberEducation. More
information on these Cyber reports can be obtained from the AEA homepage at
http:Hwww.aeanet.org The growth in high tech and correspondingly in high tech
jobs has been nothing less than extraordinary in the 1990's. High tech jobs
topped 5 million in 1999, adding 1.2 million jobs in the span of just six years.
The wages for these jobs is quite impressive -- the wage differential between
the private sector and high tech jobs increased from 57% in 1990 to 82% in 1998.
Additionally the U.S. Federal Reserve notes that 44% of GDP growth in recent
years is attributable to high tech. This growth is taking place all over the
United States not just in Silicon Valley. For example, my company, Transcrypt
International, a wireless equipment leader in communications technology has
offices right here in Washington, D.C. and manufacturing facilities in Lincoln,
Nebraska and Waseca, Minnesota. And not surprisingly, high tech is the single
largest merchandise exporter in the United States. This quick overview helps to
easily explain why the three topic areas chosen by the Oversight Subcommittee
for examination during the course of this hearing on the Tax Code and the New
Economy are so important: worker training tax initiatives, the research and
development tax credit and its regulations, and updating the
depreciation recovery periods and methods. As the next slides
will demonstrate, AEA specifically supports updating the tax code address these
important issues in the U.S. economy. Worker Training Tax Initiatives The AEA
numbers on high tech employment are actually quite conservative. The 1999 number
of 5 million high tech jobs refers only to jobs within the high tech industry,
not all of the high tech jobs throughout the entire U.S. economy. The necessity
of high tech expertise is crossing all boundaries, and I would suspect that even
in your Congressional offices, you have hired employees with high tech expertise
to help you better communicate over the web with your constituents and the
larger public. High tech is everywhere, and the entire U.S. economy his hiring
high tech. The specific high tech industry product and service spectrum covers
semiconductors and software to computers, Internet and
telecommunications systems and services. A.EA member companies are finding it
increasingly difficult to hire and retain highly skilled workers. AEA's
CyberEducation study found that the number of undergraduates with high-tech
degrees declined 5% since 1990. The rapid employment growth combined with fewer
college graduates has resulted in a shortage of highly skilled workers.
Permanently extending the Section 127 employer-provided educational assistance
exclusion and expanding it to include the pursuit of graduate studies (H.R. 323)
would allow high-tech companies to address the skilled workforce shortage by
providing training for their own employees. Research and Development Tax Credit
Research and development is a key ingredient in the New Economy and that fact is
repeated throughout the global marketplace. The U.S. trails behind other
industrialized nations in its investment in R&D. The Research and
Experimentation Tax Credit, commonly referred to as the R&D tax credit was
first enacted in the U.S. in 1981 and it is no coincidence that industry
replaced the U.S. government as the primary R&D spender in that year. This
important tax provision provides for a research credit equal to 20 percent of
the amount by which a company's qualified research expenditures for a taxable
year exceeded its base amount for that year. High-tech is an R&D intensive
industry, and the R&D credit provides high tech and other industries with a
critical tax incentive to maintain and increase their U.S.-based research and
development. The R&D tax credit is responsible for stimulating U.S.
investment, wage growth, consumption and exports which all contribute to a
stronger economy and a higher U.S. standard of living. The R&D tax credit
helps most AEA member companies (including hardware, software and
manufacturers), regardless of size who undertake research. Enactment of a
permanent R&D tax credit (H.R. 823) will enable companies to have certainty
in their tax planning. AEA strongly supported the five-year extension of this
credit last year, and urges Congress to permanently extend this credit now.
Additionally, implementation of regulations that accurately fulfills the
congressional intent behind the credit is of paramount importance. AEA defers to
this hearing's R&D panel to more fully explain the high tech industry's
concerns about the proposed R&D credit regulations. To quickly summarize,
AEA along with others in the R&D industries have filed comments with
Treasury expressing serious concern about the proposed regulations. Given the
strong comments that have been received by Treasury to these regulations, AEA
suggests that at a minimum Treasury should consider re-proposing these
regulations. U.S. Tax Code Depreciation Recovery Periods and
Methods This final slide clearly demonstrates the U.S. technology usage rates
and growth over just the last few years. Interestingly, this growth rate pales
in comparison with the growth rate of other countries across the globe. The U.S.
percentage of usage growth - 16% for computers, 72% for the
Internet, and 54% for cellular phone usage - demonstrates there is nothing
static about these industries. As the usage rate for high tech equipment
increases, the industry will continue to grow and innovate. Correspondingly, AEA
believes that the recovery periods and depreciation methods
under Section 168 should more accurately reflect what is happening in this New
Economy. AEA noted with interest the Treasury study that highlighted the
shortcomings of the current system and which concluded that the current
depreciation system is dated. Under this current regime, only
Congress has the authority to change asset class definitions or class lives, and
the introduction of over 50 separate bills in the House and Senate during the
106 th Congress to address this inequity demonstrates how much work is yet to be
done. Rather than commenting on each of these bills, AEA wishes to state the
obvious: that tax certainty and predictability is of paramount importance. Many
subsections of the high tech industry are considered to be nascent technologies
that do not even have identifiable class lives. That fact combined with class
lives that do not reflect the useful life of high tech apparatus such as
computers, software, semiconductor manufacturing equipment and
printed circuit boards, is a bad tax combination. AEA was very interested in
Treasury's proposal to establish temporary asset classes for nascent
technologies. As such, the temporary asset classes would help to provide
certainty to taxpayers for an initial development period, without disturbing the
class lives for existing technologies. AEA agrees with Treasury that this
temporary class designation would provide a signal that this asset class will be
studied before the expiration date of the temporary asset class. This signal
would be important because often such nascent technologies are too busy trying
to get their technology up and running rather than worrying about how the tax
rules should recognize them. Similarly, it would avoid placing new assets in an
existing asset class, where they may not belong, and would avoid placing new
assets permanently in a "default" class with an arbitrary class life. AEA
concludes its testimony by offering to work with Treasury and Congress to
address these shortcomings in the tax code. A-EA appreciates the opportunity to
present this overview to you today. I would be happy to answer any questions you
may have. Thank you.
LOAD-DATE: September 28, 2000,
Thursday 
