US spur for industry worries legislators from 'Frostbelt'

Against a rising presidential debate about "reindustrialization" and how to create jobs, top political and business leaders from the upper Midwest and the Northeastern parts of the United States are asking a crucial question: "What's in it for us?"

The question from the so-called "Frostbelt" -- still the home of much industry -- is hardly academic. Studies released this week by the Northeast-Midwest Congressional Coalition (representing elected political officials) argue that new across-the-board tax cuts geared essentially to the business community will only accelerate the flight of industry out of the region toward the Sunbelt states of the South and Southwest.

Moreover, the studies by the 213-member House coalition indicates a grim investment picture for the Midwest-Northeast region during the current decade.

All three major presidential candidates -- President Carter, GOP challenger Ronald Reagan, and independent John Anderson -- are directing their tax programs to a large extent toward spurring business investment and speeding up depreciation allowances for new plant and equipment.

Yet, according to the analysis for the Frostbelt congressional officials, existing federal tax policies tend to work "inherently" against distressed regions, as is the case with the Midwest-Northeast US.The reason, the officials argue, is that use of the investment tax credit combined with accelerated depreciation schedules tend to induce companies to build new facilities instead of upgrading existing plants.

But that in turn -- thanks to "right to work" labor conditions in the Sunbelt -- causes some companies to relocate away from the upper US.

For its part, the Northeast-Midwest Coalition feels that President Carter's call for "targeted" business tax cuts, as well as "scaled back" depreciation schedules, is "exactly the type of program we need," says Laurence Zabar, executive director of the coalition.

"John Anderson," Mr. Zabar says, "has also addressed the problems of the [ region] aggressively during the course of the campaign," and has talked about "targeted" programs. What the coalition does not support, Mr. Zabar says, is "broad-brush, general tax cuts" designed for business, as proposed by Mr. Reagan.

"That type of general business program," he says, "won't be helpful to our region."

Mr. Zabar, for this part, chafes at the thought that ordering business programs to help the Midwest-Northeast region is somehow "restrictive," or aiding "special interests." Rather, he maintains that targeted tax programs really help "all distressed areas in the US," not just this region.

According to the studies by the coalition, the region's share of nationwide investment in plant and equipment fell to 47 percent during the 1970s -- down from 56 percent at the start of the decade.

Growth in manufacturing investment was only about half that in the South and West. Real investment in business structures in the area, moreover, declined 14 percent during the 1970s, compared with a growth of nearly one-third elsewhere in the US.

According to Robert W. Edgar (D) of Pennsylvania, chairman of the coalition, the Midwest-Northeast region may well be losing billions of dollars in business investment because of current tax code provisions. Those provisions, he argues, encourage relocation and new plant construction rather than rehabilitation of existing structures.

Wness tax provisions?

For starters, it favors enlargement of the so-called "Rehabilitation Tax Credit." Congress, in 1978, said that the investment tax credit -- pegged at 10 percent -- would include rehabilitation of industrial and commercial structures. The coalition would increase that amount beyond 10 percent.

The coalition would also provide faster depreciation or a "differential investment tax credit" if a company invested in a distressed area. Special depreciation schedules would be applied to smaller companies. Some tax credits would be refundable, thus helping companies paying little in the way of taxes to "take advantage of the credits."

Coalition officials note that the Carter "reindustrialization" policy is essentially along the lines of their own tax proposals.

The coalition also favors a greater reliance on the so- called "target jobs tax credit" in the Northeast and Midwest. The credit, enacted by Congress in 1978, provides tax credits to employers who hire workers from some seven special categories of employment.

However, Midwest and Northeast states have been slow to use the credit, in part, the coalition says, because of questionable administration and promotion of both the state and federal levels.