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Winners, losers in new tax law

By Business and financial correspondent of The Christian Science Monitor / August 24, 1981



Washington

Old horses, volunteer firemen, and Matthew Brady Civil War photographs are winners. TV game shows and pecan trees didn't make the cut. The Economic Recovery Tax Act began life as a set of simple proposals, and reached maturity with tacked-on provisions -- some unusual and a few downright bizarre.

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Supply-side theory, for instance, is silent on the effects of accelerated depreciation for elderly horses. But there it is. Sec. 201h1A-B, big as life and the law of the land. If you buy a horse more than 12 years old, you can depreciate it over three years. Same thing for a racehorse more than 2 years old.

It is unlikely that this clause will unleash a Promethean surge in business investment. Like many such provisions, its genesis was in special-interest complaints. The administration had planned a ruling to put most horses in the five-year depreciation slot; a congressional source says. Horse owners squawked that this would actually increase their taxes, so Sen. Walter (Dee) Huddleston (D) of Kentucky managed to sneak in a few sentences giving them special relief.

For those investors planning to put their money in roller coasters and haunted houses, theme-park structures can now be deducted over 10 years, the act says.

Admittedly, some of the strangest provisions were trimmed before President Reagan signed the bill. Investment tax credits for live theater and TV game shows didn't make it out of conference. A clause allowing a $10 tax credit for each pecan tree destroyed by Hurricane Frederick in 1979 was left lying on the committee room floor.

But other tax bill ornaments of unusual glitter did survive:

Matthew Brady, Abraham Lincoln, and the irrevocable trust.

The Smithsonian Institution had a problem. Stored somewhere in New York was a treasure it badly wanted: 2,750 glass plate negatives taken by Matthew Brady, the Civil War photographer, and the Alexander Gardner portrait print of Abraham Lincoln. But the goods were locked up, held by the Dorothy Kunhardt estate under a will that would permit their sale only at a price the Smithsonian couldn't afford.

Enter the tax bill. Sen. Barry Goldwater (R) of Arizona, a museum regent, tacked on an amendment granting the Kunhardt estate an estate tax exemption of $ 700,000 -- if the Smithsonian got the photos. The museum threw in $560,000 in cash, and became proud owner of pictures recording virtually every major figure of the late 19th century.

"Their historical significance is beyond description," says Lawrence E. Taylor, a Smithsonian spokesman. "We're very grateful for, let's face it, a rather unusual step."

Financing for the fire trucks in Wayne Township, Ind.

Volunteer fire departments are not considered political entities. That means they haven't been allowed to raise money by issuing tax-free bonds. The tax act changes that. Sec. 812, the work of Rep. Andrew Jacobs Jr. (D) of Indiana, allows volunteer firemen to sell such obligations if the proceeds are used to buy a fire truck or fire station.

This provision is retroactive to Dec. 31, 1980 -- with one exception. Firefighter debt issued by the First Bank & Trust Company of Indianapolis after Dec. 31, 1969, is eligible for tax-free status. A congressional aide says this exception is aimed at the Wayne Township Volunteer Fire Department.

Tax cuts for campaign committees.

When shaping the bill, Congress did not forget itself. Currently, campaign committees are virtually free of taxation. But they do pay the top corporate rate on interest earned from funds kept in the bank. The tax act will let them pay the applicable rate, instead of automatically anteing up the highest one.

Other winners include state legislators, whose business expense regulations have been liberalized, and fishing boat crews whose pay is a percentage of the catch. Such fishermen are no longer subject to unemployment tax. And woodlot owners have been given more leeway for the tax treatment of their timber. Losers.

Orphans: The bill repeals a law that gives orphans an estate tax credit of $5 ,000 for each year they are under 21.

People who handcraft guns and hand-load cartridges: They didn't get the provision, introduced by Sen. James R. Sasser (D) of Tennessee, that would have exempted them from the federal exercise tax on firearms and munitions.

Senators who want to make sure Congress adheres to President Reagan's intentions: In a defeated Senate amendment, the Congressional Budget Office would have been required to report quarterly on whether "the purposes and goals" of the administration's budget and tax cuts were being met.