By Lisa Seachrist

Washington Editor

WASHINGTON — Tucked away in the $80 million tax-cut package passed by the U.S. House of Representatives last weekend is a measure vital to the biotechnology and pharmaceutical industries: a year-and-a-half extension of the research and development tax credit, which expired on June 30.

While the measure falls short of the permanent tax credit favored by the industry, should the bill pass it will prevent a lapse in the credit, which allows companies to forgo some of their tax liability as a result of the costs associated with research and development. But the current legislative climate in Washington makes is unlikely that the bill will pass as it currently reads.

"In order to pass in the Senate before Congress adjourns, it needs a filibuster-proof majority," said Jeff Trewhitt, spokesman for the Pharmaceutical Research and Manufacturers of America (PhRMA). "[The sponsors of the bill] don't have it. Even if they did, Clinton appears ready to veto it."

Despite a $70 billion budget surplus this year, President Clinton has pledged to veto the bill should it pass the Senate. He maintains that the surplus should first be used to shore up the Social Security system, in order to prevent a default when baby boomers begin to retire.

With Congress scheduled to adjourn next Friday, every legislative day counts. In the absence of a budget reconciliation bill, the only way the tax-cut bill could make it to the Senate floor for a vote is by the unanimous consent of the senators. Chuck Ludlam, vice president of government relations for the Biotechnology Industry Organization (BIO), believes that is unlikely.

"Some members of the Senate want to tap into the surplus for a tax cut, and others are apoplectic about the possibility," Ludlam said. "This bill will undoubtedly be filibustered."

While the tax-cut bill appears doomed to failure, Ludlam noted that doesn't mean that the research and development tax credit is destined to lapse as it did for a year from 1995 to 1996. Ludlam said House leaders have declared that, in the event that the tax cut package dies in the Senate, they are prepared to submit an "extender bill" to the Senate. That bill would extend tax credits like the research and development tax credit for a year and a half.

"But an extender bill will become one of those rare things in Washington: a bill that may very well become law," Ludlam said. "At this late stage in the game, it might have provisions attached to it that would generate debate and we are back where we started."

Ludlam and Trewhitt admit to being quite concerned about whether the tax credit will be extended, leaving the subject for the 106th Congress in January. Both said their organizations have lobbied and will continue to lobby Congress to make the tax credit permanent.

"Companies need know whether they have the tax credit when planning their research costs," Trewhitt said. "In this industry, research plans aren't executed in six months. This situation is very disruptive." *