U.S. Investment in S. Africa Wanes
QUESTION: I attended a shareholders meeting recently and was intrigued by an eloquent speech by someone urging the company to pull out its investments in South Africa. I’m curious: Have any U.S. companies withdrawn their investments in South Africa because of the violence?--G. T.
ANSWER: According to the Research Institute of America, a New York group that researches tax and business issues, American investment in South Africa is still substantial--about $1.3 billion--but only half of what it was five years ago. But that’s only part of the story.
Largely because of pressure exerted by civil rights groups, about 50 U.S. companies have discontinued operations there, and some financial institutions--notably Bank of America--have banned loans to that country. What is the typical argument for staying in South Africa or remaining as passive investors in that violence-ridden country? Companies say they fear that a sudden reduction of financial resources will slow the pace of reform there rather than speed it.
Q: I work as a contractor for a large oil company and pay most of my own expenses. The biggest exception is my liability insurance. The company includes me in its policy and I repay part of the cost of covering me. If the company’s costs go up, so do mine. Last week, I got a letter saying my insurance bill is going up 40%. I know everybody’s been complaining about insurance costs rising. But 40%? Am I getting rooked?--S. B. J.
A: Actually, you’re probably one of the lucky ones. Plenty of independent contractors have reported to insurance watchdogs that their bills have been doubled overnight. On average, in fact, businesses are paying about 61% more for liability insurance now than they were five years ago. Insurers blame the huge increases on a proliferation of lawsuits demanding--and increasingly getting--ever-greater sums.
The number of product liability cases has ballooned by about 370% since the mid-1970s. U.S. companies are doing one of three things to deal with what is now being viewed by many as a crisis. As you know, many are simply passing along the costs to contractors and customers. But others, hoping to slow the rising costs, are experimenting with ways to reduce the cost of settling liability disputes.
Texaco, TRW and Shell Oil are among companies experimenting with so-called alternative dispute resolution. Instead of going to court, the two sides appear before independent mediators. Another approach to handling the crisis is to do without. By some government and business estimates, as many as 35% of American companies are either considering dropping or have already dropped their liability insurance rather than pay the going rates. The phrase coined for this trend: going bare.
Q: Some people where I work are of the opinion that income taxes would go up for a lot of people in the first year of tax reform. Can that possibly be?--V. G.
A: Yes, that is quite possible, even though an overall reduction in tax rates is one cornerstone of the sweeping tax reform proposals heading for a House-Senate conference committee this summer. Here is why.
The Senate version of the bill calls for most of the reforms to take effect next January. But the proposed effective date of the new, lower rates is six months later. Thus, many taxpayers would likely pay more income taxes in 1987 than they do in 1986, even though the Senate proposes to cut the top rate to 27% from the current 50%. Odds are that this timetable will not change, even though the conference committee is expected to address it.
For one thing, the House version calls for a single effective date--Jan. 1 of this year. But don’t expect that House proposal to survive. Dan Rostenkowski (D-Ill.), who chairs the House Ways and Means Committee and will head the House team in the compromise negotiations, has already said he will not insist on keeping the retroactive provision.
Revenue is another consideration. If the elimination of most tax breaks is delayed or, alternatively, if the rates are lowered sooner than now scheduled, the government would lose a substantial sum of tax revenue, something the conference committee is not likely to endorse. Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Los Angeles Times, 780 Third Ave., Suite 3801, New York, N.Y. 10017.
