WASHINGTON _ The defense industry is courtingsupport in the House Ways & Means Committee tochange the base year used to calculate the research anddevelopment tax credit, a move that would mean millionsto defense contractors but would severely penalizebiotechnology companies.

The full House Ways & Means Committee will take upthe tax credit, as well as the orphan drug tax credit, at amark-up session later this week. But the situation remainsfluid because committee chairman Bill Archer (D-Tex.)has not yet signaled his support or opposition to varioustax proposals.

The House passed a tax cut last spring when it enactedthe provisions of the House Republicans' Contract withAmerica. But that tax bill did not contain either theresearch and development tax credit or the orphan drugtax cut.

The Biotechnology Industry Organization (BIO) andPharmaceutical Research Manufacturers of America(PhRMA) are lobbying Ways & Means to restore theoriginal base year to the tax credit.

The proposal is "serious," said Stephen Conafay,PhRMA's executive vice president. "The defenseindustry does well by re-calculating the base year but ithurts our industry."

The proposal would shift the base years forward to 1990-1994 from 1984-1988. "Because most of our companieswere capitalized before 1990, the proposal wouldsignificantly reduce the tax credit available to ourmembers," said Carl Feldbaum, BIO president.

The proposal originated in the Joint Taxation Committeewhich is developing a number of tax proposals asCongress faces an impending deadline to determine ifthere are sufficient domestic spending cuts to finance anytype of tax cuts. Lobbyists for BIO and PhRMA as wellas individual companies already were reconciled to thatfact that for each dollar Congress fails to achieve indomestic spending cuts the research and development taxcredit would have to be cut by the same amount.

While the drug industry earlier this year had hoped for afive-year extension of the tax credit, it is likely that it willbe pared down to 30 months, said Chuck Ludlam, BIO'svice president for government relations. "A 30-monthextension would mean that only $4.4 billion in savingswould have to be realized but a permanent cut would betwice that much," said Ludlam. n

-- Michele L. Robinson Washington Editor

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