House Subcommittee Holds Hearing on the Tax Code and the New Economy

(September 26, 2000) The House Ways and Means Committee's Oversight Subcommittee held a hearing on the tax code and the New Economy on September 26. Depreciation periods, tax incentives for worker training, and the R&D tax credit were discussed.

"Many of our tax rules predate the New Economy," said Rep. Amo Houghton (R-NY), Chairman of the House Ways and Means Committee's Oversight Subcommittee. "The economy is strong. But the strength of the economy may be masking underlying inadequacies in our tax laws."

There is "a disconnect between the skills the business community needs in the workplaces of the future and the skills many hard working Americans are trained to provide," said Rep. William Coyne (D-PA), the ranking Democrat on the Subcommittee. "Education and job skills training are critical components of efforts to succeed. The tax laws are one important and successful tool for encouraging business innovation and jobs training."

Rep. Jerry Weller (R-IL)

Rep. Jerry Weller (R-IL) argued for reform of the depreciation system as it applies to computers. He pointed out that the recovery period for office PCs is currently five years, but that many businesses replace computers every year. He also reviewed many of the technological advancements in PCs since 1995.

He questioned the Clinton administration's witness, Joseph Mikrut, of the Treasury Department, to drive home his point. "Do you believe that the current depreciation system has the potential to stymie leading edge technology?," asked Rep. Weller.

Mikrut answered that the system "may not reflect new industries that have sprung up."

Rep. Weller also asked, "Do you believe that five years is too long for the PC?"

Mikrut responded that "I think this is one that is clearly worth looking at."

Rep. Weller also outlined tax measures that the House of Representatives has passed in the 106th Congress to further the New Economy. He cited passage of bills extending the moratorium on new and discriminatory Internet taxes, blocking the Federal Communications Commission from imposing new access fees, and repealing the excise tax on phones.

Rep. Jennifer Dunn (R-WA) addressed the research and development tax credit. She argued that "it seems that Treasury is trying to narrow the scope of the credit." However, she did not argue for making it permanent. Last year the Congress passed, and Clinton signed, legislation extending the R&D tax credit for another five years.

Several industry witnesses recommended making the R&D tax credit permanent. Michael Jalbert, CEO of Transcrypt, who testified for the American Electronics Association, recommended this, along with more worker training tax incentives, and changes to depreciation recovery periods and methods for the high tech industry.

Clifford Jernigan, of Advanced Micro Devices, testified on behalf of the Semiconductor Industry Association. He stated that current tax depreciation rules for semiconductor manufacturing equipment are outdated and discourage investment. He argued that the life of such equipment should be three years, not the current five years.

Similarly, Molly Feldman, of Verizon Wireless, stated that depreciation system for wireless telecommunications equipment needs to be revised. She testified on behalf of the Wireless Depreciation Coalition.

Rep. David Minge (D-MN) also came to testify before the Subcommittee. He lamented that states compete with each other to try to induce certain businesses to locate in their states. This is deplorable, according to Rep. Minge, because states offer tax incentives. He wants federal legislation that nullifies these state tax incentives. He wants there to be a federal excise tax on any state benefits.