US business sees a lot to dislike in tax plan

You'd think American businesses would like a tax bill that cuts the maximum corporate tax rate from 46 percent to 36 percent. But businesses are finding a lot of things to dislike about the tax-overhaul bill that emerged from the House Ways and Means Committee early Saturday morning.

That's because the cut in tax rates is accompanied by a scaling back or elimination of many business tax breaks. Among the items coming under the Ways and Means knife are the investment tax credit and provisions allowing the rapid write-off of new equipment. Several industries, including oil and banking, lose special tax breaks or find them trimmed. At the same time, a higher and more comprehensive corporate minimum tax would make it tougher for profitable companies to avoid paying any federal tax.

Thus if the Ways and Means package were to become law, corporate America would pick up $135 billion more of the bill for running the government over the period 1986 through 1990.

The bill's treatment of business will be a major factor in determining whether President Reagan will support it. White House chief of staff Donald T. Regan said Sunday on CBS's ``Face the Nation'' that ``what we have to look at is to see what does that do to investment, what does it do to savings, what does it do to incentives.''

White House spokesman Larry Speakes said Monday, ``I don't anticipate us giving any signal either way'' on the tax bill ``probably until the first of next week at the earliest.''

Senate Finance Committee chairman Bob Packwood (R) of Oregon says criticism from the President ``would be enough to kill tax reform in the House.''

If criticism from business could kill the bill, it would already be dead. Boosting business taxes sharply ``doesn't make any sense from a tax policy or economic policy point of view,'' says Paul Huard, vice-president of the National Association of Manufacturers (NAM).

Shifting more of the tax burden to corporations will ``greatly diminish'' investment incentives, notes Ronald Utt, deputy chief economist at the US Chamber of Commerce. As a result, ``one has to question prospects for economic growth.''

Some companies and industries gain from the changes and like the package. Gainers include some high-technology and service companies that have been unable to make major use of the investment tax credit and accelerated depreciation. Under the Ways and Means tax-reform bill, these companies will gain more from lower rates than they will lose from reduced tax preferences.

For example, the 2,800-member American Electronics Association (AEA) was very unhappy with the committee's initial plans for treating deductions for research-and-development expenses, among other things. ``The committee has improved substantially the biggest problems that we had . . . leading us probably to be generally supportive of the bill in its current form. But we are still checking,'' says AEA vice-president Ken Hagerty.

The key business provisions of the bill include:

Cutting corporate tax rates. The top corporate rate would drop from its current 46 percent to 36 percent.

Extending write-off periods. The period over which companies can subtract from taxable income a portion of the cost of new buildings and equipment would be lengthened, thus reducing the depreciation tax break. Currently, assets can be depreciated over three to 19 years depending on the item. The new schedule is three to 30 years.

Eliminating the Investment Tax Credit. Companies now get a credit against their taxes equal to as much as 10 percent of the cost of a piece of new equipment.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.