THREE REACTIONS : R&D; Credit to Help Small Firms for a While

Small technology companies, which are often starved for capital because of the high cost of developing new products, welcomed the proposed tax credits but complained that the effects may be temporary and do little to spur the whole economy.

Two of the proposed tax changes in the budget agreement stand out:

* People who invest in companies with less than $50 million in assets--excluding real estate and financial companies--would be able to deduct 25% of the purchase price of their stock.

* The research and development tax credit for companies would be boosted from 20% to 30% for calendar year 1991. The credit could mean big savings for profitable research companies that have been in business for more than five years and have less than $50 million in assets.

“It seems all the changes put emphasis on investment in smaller companies, the historical fountain springs of economic growth,” said John Stuart, vice president of Irvine Sensors, a manufacturer of semiconductor devices in Irvine. “We don’t know what it means for us specifically . . . but I think it will improve the financing climate for companies of our size.”

But Mike Jennings, senior manager at the accounting firm of Deloitte & Touche in Costa Mesa, said the proposals may create only temporary changes in behavior.

If the R & D tax credit increase applies only for one year, many companies may decide to halt research in 1990, increase it in 1991 and then reduce it again in 1992, Jennings said.

Patrick Fevery, controller at fast-growing Rainbow Technologies Inc. in Irvine, said that while the changes are welcome, they are unlikely to make much difference in the midst of an economic downturn. He said a permanent cut in the capital-gains tax would have had a more beneficial impact on the industry since it would have made investments in companies more attractive to venture capitalists.