WASHINGTON _ The Senate Finance Committee plansto hand drug manufacturers a package of tax breaks thatfeatures a handsome tax credit for drug research anddevelopment costs, particularly those associated withorphan drugs.

The Biotechnology Industry Organization (BIO) alreadyis hailing the orphan drug and research and developmenttax credits provision in the Finance package as a"tremendous victory for biotechnology," said ChuckLudlam, BIO vice president for government relations.

The draft tax plan was fashioned by Republican membersof the Senate Finance Committee late last Friday. Detailswere made available by the committee on Monday. Thefull Finance committee will take up the GOP plan laterthis week. The measure then goes to the Senate floorwhere it will be debated along with the massive packageof Medicare cuts sought by Republicans.

Biotech firms that are investing in the development oforphan drugs would benefit the most under the draftFinance plan. They would receive a 50 cent credit forevery dollar they spend on clinical trials. The researchand development tax credit would give manufacturersabout a 20 percent credit depending on the way theincremental increase in research costs is defined. Bothcredits would expire in February 1997, but their lack ofpermanency is alleviated by the fact that manufacturerswould be able to carry them forward into tax years whenthey have revenues and tax liability to offset, said an aideto Senate Finance Committee Member Orrin Hatch (R-Utah).

The House-passed tax bill would sunset the tax credit 10months before the draft Senate plan.

The size of the Finance GOP capital gains tax cut issmaller than the House bill primarily for political reasons,the aide said. Individuals would be able to deduct 50percent of their capital gains held for at least one year,effectively reducing the top tax rate from 28 percent to19.8 percent, according to a committee summary.

Corporations also would receive slightly less in the Housebill. Their capital gains tax rate would drop from 35percent to 28 percent under the Senate plan while theHouse bill called for a reduction to 25 percent, thecommittee summary stated.

To encourage investors to dabble in the capital market,the draft Finance package permits a 75 percent exclusionfor capital assets held for at least five years. The venturecapital incentive applies to new stock offerings made bysmall businesses defined as subchapter C corporationsthat had $100 million or less in gross assets. Current lawdefines small corporations as those with less than $50million in assets.

To keep investments circulating, the provision includes arollover feature that allows deferral of capital gains fromthe sale of this type of stock if it is re-invested in anothersmall business stock offering within 60 days.

The size of the Senate Finance GOP plan is alreadyproblematic. The Congressional Budget Office, whichkeeps track of the cost of various spending and taxproposals, estimated that the tax package would actuallyincrease the deficit. That finding has startled many fiscalconservatives within the GOP, particularly Presidentialcandidate Sen. Phil Gramm (R-Tex.) who is firmlycommitted to achieving a balanced federal budget withinthe next seven years.

Finance Committee GOP members juggled a number ofinterests to achieve their tax cut package, particularlygiving American families a child credit instead ofincluding all the corporate tax provisions sought bybusiness. In addition, the panel had to trim the $354billion House-passed tax package by nearly $100 billionin order to fit the Senate GOP spending targets.

President Clinton continues to threaten to veto the GOPtax package enhancing the chances that there will be abudget logjam between the White House and GOPcongressional leaders. But the White House recentlyfloated the idea of reducing the annual Social Securitycost of living increase, this would give congressionalRepublicans an option out of enacting the highlycontroversial Medicare spending cuts. n

-- Michele L. Robinson Washington Editor

(c) 1997 American Health Consultants. All rights reserved.