Overhaul Bill Has 300 Tax Breaks Worth $10 Billion

The compromise tax overhaul bill sent to Congress for final approval Thursday contains $10.6 billion in tax breaks for special interests varying from the steel industry and low-income housing construction to the Los Angeles Public Library and the San Francisco Giants, according to congressional sources.

Investors in low-income housing would receive an estimated $500 million in relief from tough new restrictions on tax shelters. The steel industry would be able to use about $400 million in investment tax credits, which the tax bill would otherwise eliminate.

In California, a tax saving of about $7 million would be granted to the purchaser of the fire-ravaged Los Angeles library if the city should sell it to a private buyer and then lease it back. San Francisco would get favorable tax treatment for the sale of up to $50 million in bonds to build a new stadium for the Giants baseball club, which has threatened to leave town if forced to remain in Candlestick Park.

The tax bill, which is expected to receive final congressional approval in the next few weeks, includes more than 300 such special tax breaks, according to congressional aides. Altogether, senators had appealed for 1,000 such provisions and House members for 500 more.

Congress’ two top tax writers, Senate Finance Committee Chairman Bob Packwood (R-Ore.) and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), selected the winners. Congressional aides said the two lawmakers generally rewarded members of Congress who were long-time tax overhaul loyalists or those who had not yet decided to vote for the bill in its final form.

‘Blatantly Very Political’

“It’s blatantly very, very, very political,” said an aide to a Republican congressman who opposes the bill.

The special tax breaks, a staple of every major tax bill in memory, are called “transition rules” because they are ostensibly designed to ease the transition to the bill’s new tax system. “It’s a question of equity,” said Rep. Robert T. Matsui (D-Sacramento).

Most other important features of the tax bill, which would slash the top personal tax rate from 50% to 33% but also eliminate a host of popular tax credits and deductions, were approved last month by a House-Senate conference committee.

One final detail--how to treat defense contractors that are paid periodically but now pay no taxes until the contract is completed--was settled Thursday. Contractors will have to pay taxes on at least 40% of the income from each project as the work proceeds. The provision is expected to cost contractors $10.4 billion over five years.

Final Version of Bill

The transition rules became public when the final version of the bill was formally filed in the House and Senate on Thursday. The bill, several thousand pages long, is so heavy that the first few printed copies were wheeled across Capitol Hill in handcarts. Copies will not be available to the public before Saturday.

Senate Majority Leader Bob Dole (R-Kan.) won a transition rule that would allow United Telecommunications Inc. of Kansas City, Mo., to continue to take a 10% investment tax credit for construction of a fiber optic cable network under the auspices of US Sprint, a long-distance telephone service of which it is half owner. One aide estimated the value of the tax break at $250 million, but a spokesman for United Telecommunications contended that the benefit is worth considerably less.

“That’s the majority leader’s rule,” one aide said. “The majority leader got his.”

So did Rostenkowski. The bill is reported to allow Commonwealth Edison, Chicago’s electric utility, to retain investment tax credits to the tune of an estimated $300 million to $400 million in tax savings.

Sen. John Heinz (R-Pa.) worked for the rule that would allow the beleaguered steel industry to apply some of its unused investment tax credits against corporate income tax payments stretching back 15 years instead of just three. “The senator thinks it’s critical that this industry regain some of what it was investing in new equipment while it was losing money for so many years,” said Richard J. Bryers, Heinz’s press secretary.

One legislative aide said the tax break for low-income housing construction is designed to prevent such construction from drying up. Under language inserted into the bill minutes before it was sent to Congress, many investors in low-income housing developments would continue to reap the tax benefits of paper losses that the bill would deny other investors in real estate and other tax shelters.

Will Prevent Bankruptcies

“The rule doesn’t make these investors whole, but it’s going to prevent a lot of bankruptcies,” said Washington lawyer Lawrence J. Ross, a former Ways and Means Committee aide. The low-income housing breaks were backed primarily by Rep. Richard A. Gephardt (D-Mo.), the House majority whip, and were backed by Sens. Edward M. Kennedy (D-Mass.) and George J. Mitchell (D-Me.), a source said.

California will benefit from many of the transition rules, including those for Los Angeles library rehabilitation and the new stadium for the San Francisco Giants. According to an aide to Matsui, a Ways and Means Committee member who pressed for the California tax breaks, the final version of the bill includes these provisions:

--Up to $150 million in tax-exempt bonds could be issued to raise revenue to expand parking at the Los Angeles Memorial Coliseum. The tax break could be worth as much as $12 million.

--Los Angeles County pension bonds could be refinanced under present tax law instead of the new law, at a savings of an estimated $35 million.

--Los Angeles would benefit from $5 million worth of tax breaks in the financing of a new solid waste disposal facility designed to treat 850 tons of solid waste a day.

Not every requested transition rule is in the final bill. One that is not would have permitted the use of tax-exempt bonds to finance pollution control equipment for Pacific Gas & Electric’s Geyser geothermal project.