Especially Where Depreciation Is Involved, U.S. Tax Laws Are Thwarting Productivity
James Flanigan’s column on the new USS-Posco Industries steel plant at Pittsburg, Calif., (“It Took Time, but U.S. Steel Learned Lesson,” April 9) was excellent and pointed out some very important issues. But it missed one of the primary causes of the obsolescence of the basic industries of the United States: our tax laws.
American industry does not normally get government subsidies, but the fact is that they are subject to reverse subsidies in the form of excessive tax rates. Every time an environmentalist sees what he perceives to be a problem, the legislature is called upon to tax industry to pay for fixing it. When the budget runs at a huge deficit, Congress first thinks of placing a new tax on industry.
As former President Reagan has said, “Business does not pay taxes, it only collects them.” It collects them in the form of higher prices it must charge its customers for its products and services. Ultimately, we price ourselves out of international competition.
Another disadvantage that American industry must deal with is the unrealistic depreciation regulations set down by Congress and the Internal Revenue Service. The $430 million that was spent for new plant and equipment at the joint venture in Pittsburg between Pohang Steel of South Korea and USX Corp.’s U.S. Steel division will have to be written off over an unrealistically long period. Thus, the plant will virtually be forced to continue to operate the equipment well after it has reached its economic break-even point. Congress should do away with depreciation rules and allow corporations to write off all plant and equipment expenses in the year in which the expenditures are made. If enacted, this would very soon put U.S. industry back in competition with the rest of the world.
An important point that the present depreciation regulations fail to take into consideration is that when the $430 million worth of plant and equipment that USS-Posco just installed becomes obsolete and should be replaced, the cost of the replacement equipment will be close to $1 billion, more than two times the amount that the IRS allowed as a depreciation writeoff. That huge difference must come from retained profits or from new capital investment. In this case, the $430 million that was just spent was not available from U.S. Steel’s retained earnings, so new investment capital was found in South Korea.
Finally, the proposal that President Bush favors, a reduction of the capital gains tax, would provide a much needed incentive for more capital investment. Our Congress must provide the maximum incentive possible for investment if it is not to stifle and suffocate the source of jobs and the industrial base of our country.
Flanigan was correct. U.S. Steel learned its lesson. Now it’s time that Congress learned its lesson.
WILLIAM A. WILSON
Los Angeles
