In 1981, Congress created the research tax credit to encourage U.S.
businesses to do more research, thereby boosting their competitiveness
in the world economy. The credit will expire in June 1995. In tax year
1992, corporation earned slightly more than $1.5 billion worth of
research credits, most of it going to large manufacturing firms,
particularly those producing chemicals, including drugs, motor vehicles,
and machinery. Given a lack of data for evaluating the credit's net
benefit to society, GAO has not taken a position as to whether the
research credit should become a permanent part of the tax code or
allowed to expire. GAO has concluded, however, that if Congress decides
to extend the credit it may also want to ensure that the credit
continues to provide an attractive incentive to most recipients at an
acceptable revenue cost. One way this could be achieved it by requiring
that the base be reviewed periodically and adjusted as needed.