No safe harbor for a bad tax law

From the time of its enactment last year critics have faulted the ''safe harbor'' leasing provision of the administration's tax cut as a giveaway to powerful corporate interests. Under the complicated leasing law, corporations can in effect sell unused tax credits and depreciation allowances to other corporations. The ostensible intent of the law is to encourage capital investment, since money-losing firms paying no taxes to begin with would have little ability to invest in new plants or equipment. Why not, so the argument went, let firms sell their unused tax benefits to money-making firms, thus raising revenue and ensuring capital development?

Whatever the original rationale for the leasing provisions, the act has led to substantial tax losses to the Treasury. Senate Finance Committee Chairman Dole is correct in arguing that such losses are ''indefensible in a year in which the federal deficit will reach nearly $100 billion.''

Senator Dole and Chairman Rostenkowski of the House Ways and Means Committee are both considering legislation either to sharply restrict the leasing provisions or to repeal them altogether. At the very least, the leasing provisions should be tightened to prevent such abuses as a sale of $95 million in property and tax benefits by Occidental Petroleum, a firm which earned $722 million last year but which, because most earnings came from abroad, paid little in US taxes. One alternative under consideration by Senator Dole would be to restrict leasing transactions solely to new or financially endangered firms, the original justification for the law.

One particular issue that should be examined by lawmakers is the administration's contention that without the leasing law there would be a new wave of tax-motivated mergers, as well as an adverse reduction in capital investment at a time when such investment already is down because of recession. Section 269 of the US tax code would seem to fly in the face of the administration's first argument, since it already restricts mergers designed to evade paying taxes. The second argument, however, deserves consideration, given the fact that the recession appears to be lingering longer than had been expected.

Barring any special reason for retaining the leasing provision, Congress should forthrightly scrap it.

You've read  of  free articles. Subscribe to continue.
QR Code to No safe harbor for a bad tax law
Read this article in
QR Code to Subscription page
Start your subscription today