Unocal Target of First Tax Bill Change : Loses $50 Million in What May Be Plan’s Only Modification

Times Staff Writer

Unocal, the Los Angeles-based parent of the Union Oil Co. of California, was caught in a political cross fire Friday as the Senate voted to eliminate a special rule in the tax revision bill that would have saved the corporation an estimated $50 million.

Unocal fell victim to the first change in the previously unaltered tax package, and supporters said that it may be the only modification made to the measure on the Senate floor, where the bill is expected to be overwhelmingly approved, probably next week.

Retaliation Charged

Sen. Pete Wilson (R-Calif.), sponsor of the selective tax break for Unocal, said it was killed in part because the Senate leadership pushing the tax bill retaliated against him for having voted earlier to restore deductions for individual retirement accounts and charitable contributions.


Senate Finance Committee Chairman Bob Packwood (R-Ore.)--who, on the Unocal issue, voted for the first time against a provision of the tax bill, which he had previously vehemently defended a1734437230seeking revenge. “I don’t know how he could have come to that conclusion,” Packwood told reporters.

But Finance Committee aides, speaking on the condition that they not be identified, acknowledged that Packwood felt no obligation to defend Unocal’s tax preference because Wilson had voted to salvage IRA and charitable deductions. “We looked at our own close votes,” one staff member said, “and the senator from California wasn’t with us.”

Senate leaders have fought hard to keep the sweeping tax plan drafted by the Finance Committee free of all major changes, fearing that the coalition supporting the bill might disintegrate if any modifications were made.

Packwood said the loss of the Unocal rule was no threat to the tax bill. “I didn’t attempt to enforce any discipline on it,” he said. “Once people look at it, they may be even more inclined to support no other amendments.”


No ‘Hemorrhaging’

“I don’t see any great hemorrhaging” of support for the bill, said Sen. David L. Boren (D-Okla.), a senior Finance Committee member.

Earlier Friday, the tax bill survived an attempt led by Sen. Bob Kasten (R-Wis.) to restore a deduction for charitable contributions for taxpayers who do not itemize. The vote was 51 to 44.

Under a law that is about to expire, taxpayers who do not itemize may deduct charitable contributions, in addition to taking the standard deduction. The Senate bill would allow that provision to expire, limiting charitable deductions exclusively to those who itemize.


The most critical roadblock to the bill was removed Wednesday, when supporters turned back, by a vote of 51 to 48, a proposal to provide a 15% tax credit for all IRA contributions.

The amendment knocking out the Unocal provision, proposed by Sen. Howard M. Metzenbaum (D-Ohio), survived when its advocates won a procedural vote by a 60-33 margin, gathering support from such unexpected allies as Majority Leader Bob Dole (R-Kan.) and Sen. Lloyd Bentsen (D-Tex.).

Metzenbaum, a perennial Senate gadfly, singled out the Unocal rule as the first of 19 “transition rules” he objects to because they are “custom-tailored to provide a single taxpayer or a very small group with special tax benefits not available to anyone else in the country.”

The money saved by striking the Unocal rule would be used to help farmers by allowing them to partly use income averaging, a current tax provision that would be eliminated under the Senate bill.


At least 174 transition rules are salted throughout the Senate bill, amounting to a total revenue loss of $5.5 billion, according to Finance Committee estimates.

Most of them are designed to protect certain firms or public facilities from financial losses caused by sudden changes in the tax code that affect an existing or planned project. Wilson acknowledged during debate that the Unocal rule did not exactly fall into that category.

Takeover Fight

Unocal had sought the special rule to help ease the financial stress caused by its successful fight against a takeover attempt last year by T. Boone Pickens, chairman of Mesa Petroleum Co.


Unocal, which took on an additional $4.4 billion in debt to remain independent, lost millions of dollars in federal income tax deductions for interest expense when it was required by its banks this year to shift its loans from the holding company to its operating firm. Under the refinancing arrangement, the company was no longer able to fully deduct its interest expenses because part of the expenses would then be canceled out by foreign tax credits.

Aid for Another Firm

Wilson argued that financially troubled Unocal deserved the same treatment as Phillips Petroleum Co., which received a somewhat different transition rule to help it ease the cost of defending itself against a similar takeover attempt by Mesa Petroleum.

Both Wilson and Sen. Alan Cranston (D-Calif.) defended the Unocal rule on the Senate floor, suggesting that the cost of the provision was far less than the $50 million estimated by the Joint Tax Committee.


Barry Lane, the official spokesman for Unocal, refused to comment on the Senate action.