Trojan Horse Feared in Tax Reform : Rep. Gephardt Cites Dangers if Congress Fails to Cut Deficit

The House Democratic caucus chairman warned Friday that, if Congress fails to reduce the federal deficit through spending cuts, tax reform could become a “Trojan Horse” that, in the guise of bringing simplicity and fairness to taxpayers, would be a vehicle for higher taxes.

Rep. Richard Gephardt (D-Mo.) made his remarks at the conclusion of a two-day conference on the economy sponsored by the New York Stock Exchange, the Los Angeles Times and the UCLA Graduate School of Management.

The meeting, titled “The Major Issue Facing America: Public Policy and Economic Growth,” brought together more than 100 members of Congress, business and academia to consider solutions to problems facing U.S. business.

Gephardt, summarizing conference participants’ key concerns about tax reform, said any revamping of the tax code must be done with the goal of enhancing American industry’s position in the world market.

That, he said, must include every economic sector, from the Rust Bowl industries of steel and automobiles to the high-technology industries of electronics and aerospace.

Hartley Absent

Other key issues considered at conference workshops included the turbulent changes taking place in the banking industry, the growing dominance of institutional investors in the stock market and the tendency of unfriendly takeovers to divert corporations from their long-range goals.

The unsettling effect of hostile takeovers was driven home unexpectly by the sudden absence Friday of conference participant Fred L. Hartley, chairman of Unocal Corp. In the midst of a workshop Thursday, Hartley learned that Mesa Partners, an investor group headed by Texas oilman T. Boone Pickens, had acquired a 7.9% stake in Los Angeles-based Unocal, parent of Union Oil Co. of California.

“As you can see, he’s not with us,” said Rep. Timothy E. Wirth (D-Colo.), as he told the conference what the workshop on capital markets had discussed about the impact of mergers and acquisitions and of financial deregulation.

A prevailing theme throughout the conference was the need to reconcile the government’s decreasing involvement in U.S. industry with the need for increasing its cooperation to help industry compete “on a level playing field” in what has become a “global economy.”

Antitrust policy and proposed tax reform need to be “rethought,” participants said, if American industry is to compete “if not freely, then fairly,” with its Japanese and European counterparts.

Participants were unanimous that banking laws, deficit spending and other issues require immediate attention but there was little agreement on what to do.

Reporting on the tax reform workshop, Rep. Dick Cheney (R-Wyo.) said there was disagreement over whether the tax system needs to be overhauled. He said that, while such reform is intended to make the tax system less complicated, “it’s hard to agree on just what is simple, fair and just.”

Wirth, reporting on the workshop on capital markets, said that, if there is a consensus in Congress, it is that capital institutions are becoming deregulated de facto and if lawmakers want to do something about it, they had “better hurry up.”

He repeated the banking industry’s claim that its cost of doing business went up when Congress lifted interest rates, and now Congress should balance the scales by allowing banks to expand into areas such as insurance.

Oppose Protection

Some participants also said that, while hostile takeovers may appear harmful, they may turn out to be an efficient way to weed out incompetent managers. Legislation to protect companies from such takeovers could do more harm than good, they suggested.

Participants in the workshop technology agreed that government and military funding of private sector research and development has made the United States the world leader in technology, said Thomas C. Beiseker, chief executive of Data-Design Laboratories and director of the American Electronics Assn.

From the workshop on industrial relations and competition, Donald Ephlin, vice president of the United Auto Workers, said that, while relations have improved between workers and management, as evidenced by the growing use of profit-sharing and Employee Stock Ownership Plans, “union busting” has increased in medium and smaller firms during the last 10 years.