Tax Bill’s Impact to Vary Greatly Among Sectors : Heavy Manufacturing and Real Estate Seen Hard Hit; Technology, Retailing Win

The sweeping tax bill approved by congressional negotiators over the weekend is expected to have a dramatic impact on American industry. Heavy manufacturing and many real estate developers have railed against the loss of cherished tax incentives. But retailers and technology firms, which have long felt overtaxed, generally have cheered the move to lower overall corporate tax rates. While the enthusiasm of some early corporate tax-reform advocates has waned, some opponents have found the process less painful than anticipated.

With approval of a final bill by Congressional negotiators--and expected approval next month by the full House and Senate--American business is now bracing for this massive overhaul of the nation’s tax system. Here is a look at how various industries will be affected: Heavy Industry

Executives in heavy manufacturing--steel, autos, machine tools and the like--complain that by eliminating some fundamental incentives for capital spending, the new tax bill will hurt the already depressed manufacturing sector more than almost any other part of the economy.

But some economists argue that the bill won’t do any long-term damage to basic industry. They say the bill’s provisions that hurt industry will eventually be balanced out by the fact that the legislation should eliminate non-productive tax shelters, in real estate and other fields, that have drained money away from capital-intensive, goods-producing industries.

“The changes in the tax code in the longer term should be a wash for capital goods industries,” says Peter Toja, economist at Merrill Lynch Economics. “But in the short term, it will hit Rust Belt industries pretty hard, and it may force marginal producers to get out faster than they might have otherwise.”

While lower corporate tax rates will be beneficial, heavy manufacturers will be hurt severely by elimination of the investment tax credit, which is a major spur to spending on new plant and equipment.

Assuaging initial fears among manufacturers, however, the House-Senate conference committee left current schedules for the depreciation of plant and equipment, which were liberalized in 1981, essentially unchanged. Manufacturers had feared that incentives to modernize production facilities would be reduced if depreciation schedules were lengthened.

Some industry officials are warning that the bill will accelerate the movement of manufacturing plants offshore. Elimination of the investment tax credit will reduce the incentive to build facilities in the United States, they say, while companies that produce goods overseas will still be able to benefit from the newly lowered tax rates on corporate profits. And, by reducing tax benefits designed to offset tax subsidies provided to manufacturers by some other countries, the bill will make it more attractive for heavy industry to move offshore, according to industry trade groups.

However, other tax bill provisions affecting the foreign tax credit, used by many multinationals, could make investment in the United States more appealing.

Manufacturers that sell in the retail market, such as auto makers, will benefit most from the cuts in personal tax rates, which should spur demand for consumer products. Basic industries like steel and machine tools that only sell to other manufacturers may have to wait a long time before increased consumer spending translates into greater capital investment by their business customers.