Firms Split Over Value of Tax Reform : Capital-Intensive Industries Opposed, Service Sector Cheers
American business, generally among President Reagan’s staunchest allies, is sharply divided over his sweeping tax reform proposals, with some industry officials vowing Wednesday to lobby vigorously to get it revised.
Leaders in such capital-intensive industries as autos, steel and oil said Reagan’s plans to abolish investment tax credits and slow depreciation write-offs will stifle capital investment and hurt their industries, already battered by the flood of imports and inefficient plants.
“I see nothing in there that will help us in capital formation,” said Don McCambridge, manager of tax analysis for Bethlehem Steel, adding that his chief worry was whether the cash-strapped steel industry would be able to raise the funds needed to rebuild aging factories.
Labor-Intensive Industries
On the other hand, leaders in such labor-intensive industries as retailing, services and electronics--which don’t enjoy capital write-offs as much--said the plan will spur economic growth and equalize the tax burdens between different industries.
“The service sector has paid a proportionately higher share of the tax burden than the smokestack industries,” said Philip M. Hawley, chairman and chief executive of Los Angeles-based Carter Hawley Hale Stores, a major retailer.
Bickering over the tax plan “is going to divide business community brother against business community brother,” said John M. Albertine, president of the American Business Conference, a trade group representing medium-size, fast-growing businesses.
Such bickering, some industry leaders suggested Wednesday, could divert too much attention from the problem of the federal budget deficit, which they said was far more pressing. And after concessions to special interests, the tax code may be very little different from its current form, they said.
“There are going to be some of the most brutal lobbying efforts ever,” said Joseph J. Pinola, chairman and chief executive of Los Angeles-based First Interstate Bancorp. “When it’s over, there are still going to be the same forms printed, the same deductions and an enormous amount of paper work.”
While many firms were unhappy with major elements of the Reagan plan, they generally agreed that it is better for business than the original Treasury Department proposal last November, which, among other things, would have stretched out the period over which depreciation write-offs could be taken and would have increased taxes on long-term capital gains.
Generally, business leaders applauded Reagan’s proposal to lower the corporate tax rate to 33% from 46% and the top individual rate to 35% from 50%. They also cheered the move to reduce the tax on capital gains to 17.5% from 20%.
Other items receiving praise included the continuation, for at least three years, of the tax credit for research and development expenditures. Ken Hagerty, vice president for governmental operations of the American Electronics Assn., said such a provision is critical to spur innovation among high-technology firms.
But many industries found many specific proposals much to their dislike. The provision that would limit full deductions on costs of business-related meals and drinks to $25 per meal per person--no limit for full deductions exist now--could result in the loss of up to 100,000 food-service employees, predicted Ted Balestreri, president of the National Restaurant Assn.
The American Council of Life Insurance and the Health Insurance Assn. of America said the Reagan proposal to tax part of employers’ contributions to group health insurance premiums for employees would jeopardize protection to 80% of the nation’s workers and their families.
First Interstate’s Pinola expressed concern about provisions to modify the tax-exempt status of some municipal bonds and to eliminate the deductibility of charge-offs on bank loan losses. But he said these were minor annoyances in a bill that he described as “more a reconfiguration than a simplification.”
Homebuilders said the Reagan plan could cut new construction of rental housing by reducing tax rates and thereby reducing the attractiveness of tax-shelter partnerships that construct apartment complexes.
“Those that are built will have to command higher rents,” said Eli Broad, chairman and chief executive of Los Angeles-based Kaufman & Broad, a major home builder. However, he said, that could increase construction of single-family homes.
Perhaps the biggest complaints involved Reagan’s plan to reduce write-offs for new capital investment.
Such industries as steel and autos, which have enjoyed relatively low effective tax rates thanks to their ability to use investment tax credits and accelerated depreciation write-offs, said they would fight the proposed deletion of the investment credit.
The oil industry also expressed displeasure, not only with the reduced capital write-offs but with the elimination of the longstanding oil depletion allowance, which allows producers to deduct 15% of the gross value of oil and gas at the wellhead.
“What the President has proposed will reduce our ability to generate already inadequate cash flow. There will be less drilling and less oil and gas found. This is bad news not just for oil producers but for the energy security of our country,” said Lloyd Unsell, executive vice president of the Independent Petroleum Assn.
