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:

Insurance

The property-casualty insurance industry had been targeted to carry a heavier tax load--from $5 billion to $8 billion over five years--depending on which of the competing versions of the tax legislation prevailed, so its main goal was to obtain the least disruptive tax treatment.

“We knew we were going to have to pay more money, and we didn’t want to have to restructure the industry to do it,” said Marc H. Rosenberg, vice president for government relations of the Insurance Information Institute, a trade group.

Based on information available to the industry as of Sunday, that sort of restructuring appears to have been avoided.

Because the industry has wallowed in red ink for much of the 1980s and reported net losses in 1984 and 1985, the conferees’ bill will perhaps hit hardest at this point in implementing the significantly stiffer minimum tax for corporations, with the rate set at 20%.

Another area likely to affect investment practices of insurers in both the property-casualty and life insurance sectors are new limitations on the kinds of municipal bonds that will be granted tax-exempt status. Tax-exempt bonds are heavily used by insurers for investing funds held in reserve against future potential loss claims. In some lines of business, such as commercial and professional liability insurance, reserves must be established to cover claims that could arise years after a given policy year, and municipal bonds have been a favored vehicle for these funds, Rosenberg noted. Now these bonds will be less available.

The life insurance sector counts as a victory the retention of the tax-exempt status for gains generated by the cash value of life insurance policies--a major selling point for these policies. Also welcome was retention of the tax-free status of employer-paid life insurance premiums up to a face value of $50,000 of insurance.