I come to the floor to speak about a real opportunity that we have this week, in this Congress, and in this Senate, to come together in a bipartisan way to adopt measures that will actually create jobs and help grow our economy.
This week we are considering tax extenders, a package of bills that can do a lot of good for the middle class, our economy, and our Nation. Together, various proposals in the tax extenders would spur investment in manufacturing, clean energy, and innovation; make it easier for families to afford a home or to send their children to college; open career pathways for veterans; and bring investments in jobs to communities in need. They recently passed by a voice vote out of the Finance Committee in the Senate, sending an important signal that we can come together, Democrats and Republicans, to move our economy forward.
I mentioned innovation and manufacturing in particular as two of the policies this broader package helps promote. I would like to discuss two important bipartisan policies in this package, bills that have been rolled into the extenders package that can do a lot of good for startups and for innovative small manufacturers, and for firms that invest heavily in the research and development that is needed to yield groundbreaking discoveries and steadily grow manufacturing employment in the United States.
R&D, research and development, is the cornerstone of any competitive company, and I would suggest country. In the 21st century, for us to have and sustain an innovative economy, it is certainly the cornerstone of our Nation’s future. That is why, for a number of years, bipartisan majorities in Congress have supported the R&D tax credit so innovative companies are incentivized to keep investing in critically needed R&D, in new ideas, and in new products. But there has long been a problem with the structure of the R&D credit. It doesn’t reach early stage startup companies, those that are most innovative and those that have the greatest promise to grow.
As the GAO has reported, over half of the current R&D credit goes to firms making over $1 billion. Although they are important as well, it has become clear we are missing an opportunity to incentivize the most innovative, smallest startup companies, especially in manufacturing, an industry that I know invests a huge amount in R&D but has had a challenging environment competitively and globally in the past decade. Because the R&D credit is a credit and not a tax–and is a credit only if you have a tax liability, only if your company is profitable. A pre-profitable company can’t access it.
If you are a small business that pays AMT, while there are many credits you could claim, the R&D isn’t one of them, even though it is so important to our commitment. This leaves out firms at the early stage, where they are facing the highest risk of failure but who are also the kind of technology-focused, early stage, high-growth, high-potential businesses that have generated more net jobs than any other area of our economy in this century.
These firms, that are sometimes called gazelle firms, are young innovative businesses with the potential to explode in size and create hundreds or thousands of jobs. Think of Steve Jobs and Steve Wozniak in a California garage starting what would become Apple or think of Rick Birkmeyer or Ray Yin in Delaware, my home State.
Rick Birkmeyer is an entrepreneur who has started a number of successful biotech companies in the Delaware region. He is someone with a reputation as a leader in his field. Even so, raising capital for a new startup venture is always a challenge. Rick today is the founder of CD Diagnostics, a leader in biomarker research and biochemical test development that makes tests to tell if a joint is infected or merely irritated. These tests would help orthopedic surgeons determine if surgery is needed and avoid a great deal of expensive and sometimes unnecessary exploratory procedures. The company is only a few years old and began with one employee. Today they have 82 and believe they will have well over 170 in just two more years.
Exponential hockey stick-like growth such as this is great, but if he and his company were able to use the R&D credit before they reach profitability, they would be able to hire more people, grow more quickly by investing in equipment, and get products to market faster.
Another young Delaware company that would benefit from the tax credit is ANP of Newark, DE. I sat next to its CEO Ray Yin at the Wesley College graduation this weekend, where he gave the keynote address. Ray’s company, ANP, began with just one employee–him. Today it is a leader in making nanotherapeutics and in biodefense technology that is affordable, wearable, and easy to use, whether testing against biochemical agents in the war setting or food-borne illnesses or water contamination at home.
Both of these two companies make terrific, compelling, technology-based products, have managed their cash well, and are great examples of how to run a startup. But for each of them they went through a very demanding period from their first capital investment to when they had reliable revenue coming in. That is often called the valley of death or the gap between launch and sustainability. They would be farther along, more mature, and more robust if they had been able to access the R&D credit with their early expenditures.
Over the past few years I have been working diligently with a group of fellow Senators, Republicans and Democrats, to find ways that we could work together to reshape and target a portion of the R&D credit to make it accessible to these sorts of early stage companies.
I want to give particular credit to Republican Senator Mike Enzi of Wyoming, who has been tireless and thoughtful. We have not always agreed–we come from quite different political perspectives–but his investment of time and thoughtfulness in crafting the final outcome of the Startup Innovation Credit Act is worthy of thanks and a compliment.
Senator Schumer on the Finance Committee has helped move the R&D credit revision forward into the tax extenders package.
Manufacturing Jobs for America is a broader initiative that more than 26 Senators have participated in that includes more than 33 bills. This bill, the Startup Innovation Credit Act, is one of them, one of many bipartisan bills that can help manufacturers to grow, can help them to invest, and can help them get through a critical, early stage period.
Pat Roberts, Republican Senator of Kansas, has also worked with me, as well as with Senators Enzi and Schumer, on a revision to the R&D credit that isn’t available to firms, mostly small businesses, that pay the AMT, so we changed that as well. Both of these provisions have been adopted into the tax extender package.
I also wanted to mention the first one I referenced, the Startup Innovation Credit Act, was also supported and has been moved forward with contributions by Senators Rubio, Blunt, Stabenow, Moran, and Kaine.
This is a terrific way for us to find a path forward for companies that are still too early in their development to pay employment taxes but to use a fix that allows them to claim the R&D credit against employment taxes when they aren’t yet paying income taxes.
This kind of credit has been used before in States such as Iowa, Arizona, New York, Connecticut, and Pennsylvania. And they have been game changers–helping new firms to open their doors, to hire more workers, and to keep their doors open. By allowing companies to claim the R&D credit against either the AMT or their payroll tax obligations, we don’t pick winners and losers and we don’t focus on a specific area of the economy or technology. What we are doing instead is supporting any private sector firm that invests in research and development. It means cash in the pockets of small startup companies, which can make a critical difference, especially when financing and credit are tight.
Together, these bipartisan proposals can do a lot to put more Americans to work today unleashing the innovations that will create the jobs of tomorrow. I believe the Federal role in research and innovation is fundamental. It is also bipartisan.
I thank my colleagues on both sides of the aisle for their partnership and collaboration. I specifically thank the chair of the Finance Committee Senator Ron Wyden for his leadership in ensuring that the tax extenders package is available for us to consider now on the floor, that these provisions were included, and for his support for moving forward on these vital job-creating proposals.
Now let’s work together in this Chamber to move across the finish line and get the job done so America can get more of our best people to work.